AS FILED WITH THE SEC ON June 25, 1997. REGISTRATION NO. 333-07451
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
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PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Trust)
PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(800) 437-4016 EXT. 46
(Address and telephone number of principal executive offices)
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THOMAS C. CASTANO
ASSISTANT SECRETARY
PRUCO LIFE INSURANCE COMPANY
213 WASHINGTON STREET
NEWARK, NEW JERSEY 07102-2992
(Name and address of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
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Variable Universal Life Insurance Contracts--The Registrant has registered an
indefinite amount of securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Rule 24f-2 notice for fiscal year 1996 was filed on
February 28, 1997.
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on July 1, 1997 pursuant to paragraph (b) of Rule 485
------------------
(date)
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on pursuant to paragraph (a) of Rule 485
------------------
(date)
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM N-8B-2)
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. The Pruco Life Variable Appreciable Account
6. The Pruco Life Variable Appreciable Account
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Contract; Short-Term
Cancellation Right, or "Free Look"; Type of Death
Benefit; Changing the Type of Death Benefit; Premiums;
Contract Date; Allocation of Premiums; Transfers; Dollar
Cost Averaging, Auto-Rebalancing; Charges and
Expenses; How a Contract's Cash Surrender Value Will
Vary; How a Type A (Fixed) Contract's Death Benefit
Will Vary; How a Type B (Variable) Contract's Death
Benefit Will Vary; Surrender of a Contract; Withdrawals;
Increases in Basic Insurance Amount; Decreases in Basic
Insurance Amount; Lapse and Reinstatement; When
Proceeds are Paid; Riders; Other General Contract
Provisions; Voting Rights; Substitution of Fund Shares
11. Brief Description of the Contract; The Pruco Life
Variable Appreciable Account
12. Cover Page; Brief Description of the Contract; The
Funds; Sale of the Contract and Sales Commissions
13. Brief Description of the Contract; The Funds; Charges
and Expenses; Sale of the Contract and Sales
Commissions
14. Brief Description of the Contract; Requirements for
Issuance of a Contract
15. Brief Description of the Contract; Allocation of
Premiums; Transfers; Dollar Cost Averaging, Auto-
Rebalancing; The Fixed-Rate Option
16. Brief Description of the Contract; Detailed Information
for Prospective Contract Owners
17. When Proceeds are Paid
18. The Pruco Life Variable Appreciable Account
19. Reports to Contract Owners
20. Not Applicable
21. Contract Loans
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
22. Not Applicable
23. Not Applicable
24. Other General Contract Provisions
25. Pruco Life Insurance Company
26. Brief Description of the Contract; The Funds; Charges
and Expenses
27. Pruco Life Insurance Company; The Funds
28. Pruco Life Insurance Company; Directors and Officers
29. Pruco Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Pruco Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Contract; The Funds; How a
Contract's Cash Surrender Value Will Vary; How a Type
A (Fixed) Contract's Death Benefit Will Vary; How a
Type B (Variable) Contract's Death Benefit Will Vary
45. Not Applicable
46. Brief Description of the Contract; The Pruco Life
Variable Appreciable Account; The Funds
47. The Pruco Life Variable Appreciable Account; The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Not Applicable
52. Substitution of Fund Shares
53. Tax Treatment of Contract Benefits
54. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Financial Statements of the Pruco
Life Variable Appreciable Account; Consolidated
Financial Statements of Pruco Life Insurance Company
and Subsidiaries
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
JULY 1, 1997
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
VARIABLE UNIVERSAL LIFE
This prospectus describes a flexible premium variable universal life insurance
contract (the "Contract") offered by Pruco Life Insurance Company ("Pruco
Life"). The Contract provides life insurance coverage with flexible premium
payments and a variety of investment options. Subject to an initial premium, you
can pay premium amounts as desired, so long as sufficient money is in the
Contract Fund to cover all charges. If there is insufficient money in the
Contract Fund, the Contract may lapse without value.
There are two types of death benefit available. One type generally remains fixed
in the amount initially selected, the other will vary daily with the investment
performance of the investment options you select. For each type, there are
generally two death benefit guarantees, each of which can be secured by a
certain level of premium payments.
A portion of the Contract's premiums and the earnings on those premiums will be
held in one or more of the following ways.
o They may be invested in one or more of 15 available subaccounts of the Pruco
Life Variable Appreciable Account, each of which invests in a corresponding
portfolio of the Funds:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND")
Money Market
Diversified Bond High Yield Bond Equity
Conservative Balanced Stock Index Prudential Jennison
Flexible Managed Equity Income Global
The availability of the following five fund portfolios is subject to state
approval:
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
AIM V.I. Value Fund American Century VP Value Fund
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST
Growth Portfolio Emerging Growth Series
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
o They may be allocated to a fixed-rate option which guarantees a stipulated
rate of interest. Interest is credited daily upon any portion of the premium
payment allocated to the fixed-rate option at rates periodically declared by
Pruco Life Insurance Company in its sole discretion but never less than an
effective annual rate of 4%.
This prospectus describes the Contract generally and the Pruco Life Variable
Appreciable Account.
The attached prospectuses for the Funds and their related statements of
additional information describe the investment objectives and the risks of
investing in the portfolios. Additional investment options may be added in the
future.
THE REPLACEMENT OF LIFE INSURANCE IS GENERALLY NOT IN THE INTEREST OF THE
CUSTOMER. IN MOST CASES, WHEN A CUSTOMER REQUIRES ADDITIONAL COVERAGE,
SUPPLEMENTING THE EXISTING POLICY BY PURCHASING ADDITIONAL INSURANCE OR A NEW
POLICY SHOULD BE REQUESTED, THEREBY PROTECTING THE BENEFITS OF THE ORIGINAL
POLICY. IF YOU ARE CONSIDERING REPLACING A POLICY, YOU SHOULD COMPARE THE
BENEFITS AND COSTS OF SUPPLEMENTING YOUR EXISTING POLICY WITH THE BENEFITS AND
COSTS OF PURCHASING THE CONTRACT DESCRIBED IN THIS PROSPECTUS AND YOU SHOULD
CONSULT WITH A QUALIFIED TAX ADVISOR.
<PAGE>
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
CURRENT PROSPECTUSES FOR THE FUNDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016 ext. 46
VUL-1 Ed 7-97 Catalog # 64M9743
<PAGE>
<TABLE>
PROSPECTUS CONTENTS
<CAPTION>
Page
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<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS.................................. 1
BRIEF DESCRIPTION OF THE CONTRACT..................................................... 2
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY, THE PRUCO LIFE VARIABLE
APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS AVAILABLE
UNDER THE CONTRACT................................................................. 4
PRUCO LIFE INSURANCE COMPANY....................................................... 4
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT........................................ 4
THE FUNDS.......................................................................... 5
THE FIXED-RATE OPTION.............................................................. 7
WHICH INVESTMENT OPTION SHOULD BE SELECTED?........................................ 7
DETAILED INFORMATION FOR PROSPECTIVE CONTRACT OWNERS.................................. 8
REQUIREMENTS FOR ISSUANCE OF A CONTRACT............................................ 8
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"....................................... 8
TYPE OF DEATH BENEFIT.............................................................. 8
CHANGING THE TYPE OF DEATH BENEFIT................................................. 8
PREMIUMS........................................................................... 9
DEATH BENEFIT GUARANTEE............................................................ 10
CONTRACT DATE...................................................................... 11
ALLOCATION OF PREMIUMS............................................................. 11
TRANSFERS.......................................................................... 12
DOLLAR COST AVERAGING.............................................................. 12
AUTO-REBALANCING................................................................... 12
CHARGES AND EXPENSES............................................................... 13
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY.................................... 16
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY............................ 16
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY......................... 17
SURRENDER OF A CONTRACT............................................................ 18
WITHDRAWALS........................................................................ 18
INCREASES IN BASIC INSURANCE AMOUNT................................................ 19
DECREASES IN BASIC INSURANCE AMOUNT................................................ 19
WHEN PROCEEDS ARE PAID............................................................. 20
LIVING NEEDS BENEFIT............................................................... 20
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED PREMIUMS... 21
CONTRACT LOANS..................................................................... 23
SALE OF THE CONTRACT AND SALES COMMISSIONS......................................... 23
TAX TREATMENT OF CONTRACT BENEFITS................................................. 24
WITHHOLDING........................................................................ 25
LAPSE AND REINSTATEMENT............................................................ 26
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS................ 26
OTHER GENERAL CONTRACT PROVISIONS.................................................. 26
RIDERS............................................................................. 27
VOTING RIGHTS...................................................................... 27
SUBSTITUTION OF FUND SHARES........................................................ 28
REPORTS TO CONTRACT OWNERS......................................................... 28
STATE REGULATION................................................................... 28
EXPERTS............................................................................ 28
LITIGATION......................................................................... 29
ADDITIONAL INFORMATION............................................................. 29
FINANCIAL STATEMENTS............................................................... 29
DIRECTORS AND OFFICERS................................................................ 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
FINANCIAL STATEMENTS OF THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT.................. A1
CONSOLIDATED FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES... B1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND IN THE PROSPECTUSES AND THE STATEMENTS OF ADDITIONAL
INFORMATION FOR THE FUNDS.
</TABLE>
<PAGE>
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
ACCUMULATED NET PAYMENTS--The actual
premium payments you make FUNDS--Mutual funds with separate
accumulated at an effective annual portfolios. One or more of the
rate of 4% less any withdrawals you available Fund portfolios may be
make accumulated at an effective chosen as an underlying investment
annual rate of 4%. for the Contract.
ATTAINED AGE--The insured's age on LIFETIME DEATH BENEFIT GUARANTEE
the Contract date plus the number of PERIOD--The lifetime of the
years since then. Contract, during which time the
Lifetime Death Benefit Guarantee is
BASIC INSURANCE AMOUNT--The amount available if sufficient premiums are
of life insurance as shown in the paid. See DEATH BENEFIT GUARANTEE,
Contract. page 10.
CASH SURRENDER VALUE--The amount LIMITED DEATH BENEFIT GUARANTEE
payable to the Contract owner upon PERIOD--A period which is determined
surrender of the Contract. It is on a case-by-case basis, during
equal to the Contract Fund minus any which time the Limited Death Benefit
Contract debt and, during the first Guarantee is available if sufficient
10 Contract years, minus the premiums are paid. See DEATH BENEFIT
applicable surrender charge. GUARANTEE, page 10. The period
applicable to your Contract is shown
CONTRACT--The variable universal on the Contract data pages.
life insurance policy described in
this prospectus. MONTHLY DATE--The Contract date and
the same date in each subsequent
CONTRACT ANNIVERSARY--The same date month.
as the Contract date in each later
year. PRUCO LIFE INSURANCE COMPANY--Us,
we, Pruco Life. The company offering
CONTRACT DATE--The date the Contract the Contract.
is effective, as specified in the
Contract. THE PRUCO LIFE VARIABLE APPRECIABLE
ACCOUNT (THE "ACCOUNT")--A separate
CONTRACT DEBT--The principal amount account of Pruco Life registered as
of all outstanding loans plus any a unit investment trust under the
interest we have charged that is not Investment Company Act of 1940.
yet due and that we have not yet
added to the loan. THE PRUDENTIAL SERIES FUND, INC.
(THE "SERIES FUND")--A mutual fund
CONTRACT FUND--The total amount with separate portfolios. One or
credited to a specific Contract. On more of the available Series Fund
any date it is equal to the sum of portfolios may be chosen as an
the amounts in all the subaccounts, underlying investment for the
the amount invested under the Contract.
fixed-rate option, and the principal
amount of any Contract debt. SUBACCOUNT--An investment division
of the Account, the assets of which
CONTRACT OWNER--You. Unless a are invested in the shares of the
different owner is named in the corresponding portfolio of the
application, the owner of the Funds.
Contract is the insured.
VALUATION PERIOD--The period of time
CONTRACT YEAR--A year that starts on from one determination of the value
the Contract date or on a Contract of the amount invested in a
anniversary. subaccount to the next. Such
determinations are made when the net
DEATH BENEFIT--The amount we will asset values of the portfolios of
pay upon the death of the insured the Funds are calculated, which is
before reduction by any Contract generally at 4:15 p.m. New York City
debt and amounts needed to pay time on each day during which the
charges through the date of death. New York Stock Exchange is open.
FACE AMOUNT--The same as the "basic VARIABLE INVESTMENT OPTIONS--The
insurance amount." subaccounts.
FIXED-RATE OPTION--An investment WE--Pruco Life Insurance Company.
option under which interest is
accrued daily at a rate that Pruco YOU--The owner of the Contract.
Life declares periodically, but not
less than an effective annual rate
of 4%.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACT
As you read this prospectus you should keep in mind that you are considering the
purchase of a life insurance contract. Because it is VARIABLE LIFE INSURANCE,
and variable life insurance has significant investment aspects and requires you
to make investment decisions, it is also a "security." That is why you have been
given this prospectus. Securities which are offered to the public must be
registered with the Securities and Exchange Commission, and the prospectus that
is a part of the registration statement must be given to all prospective buyers.
But because a substantial part of the premium pays for life insurance that will
pay to the beneficiary, in the event of the insured's death, an amount which
generally far exceeds your total premium payments, you should not buy this
Contract unless a major reason for the purchase is to provide life insurance
protection.
The Contract is a form of variable universal life insurance. It is built around
a Contract Fund, the value of which changes every business day. The chart below
describes how the value of your Contract Fund changes.
You may choose to have premiums, after the deduction of certain charges,
invested into any one or more of the 15 available subaccounts or in the
fixed-rate option. Your Contract Fund value changes every day depending upon the
change in the value of the particular investment options that you have selected
for the investment of your Contract Fund.
Although the selection of any of the subaccounts offers the possibility that
your Contract Fund value will increase if there is favorable investment
performance, you are subject to the risk that investment performance will be
unfavorable and that the value of your Contract Fund will decrease. The risk
will be different, depending upon which investment options you choose. See WHICH
INVESTMENT OPTION SHOULD BE SELECTED?, page 7. If you select the fixed-rate
option, you are credited with a declared rate or rates of interest but you
assume the risk that the rate may change, although it will never be lower than
an effective annual rate of 4%.
The following chart outlines the components of your Contract Fund and the
adjustments which may be made including the maximum charges which may be
deducted from each premium payment and from the amounts held in the designated
investment options. These charges are largely designed to cover insurance costs
and risks as well as sales and administrative expenses. The maximum charges
shown in the chart, as well as the lower charges that we are currently making,
are fully described under CHARGES AND EXPENSES, page 13.
----------------------------------------------------------
PREMIUM PAYMENT
----------------------------------------------------------
----------------------------------------------------------
o less a charge of up to 7.5% of the premiums paid for
taxes attributable to premiums. In Oregon this is
called a premium based administrative charge.
o less a charge for sales expenses of up to
4% of the premiums paid
----------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTED PREMIUM AMOUNT
o To be invested in one or a combination of:
o 15 investment portfolios of the Funds (availability is subject to state
approval)
o The fixed-rate option
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT FUND
On the Contract Date, the Contract Fund is equal to the invested premium amount
minus any of the charges described below which may be due on that date.
Thereafter, the value of the Contract Fund changes daily.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
ADJUSTMENTS MADE TO CONTRACT FUND AS APPLICABLE FOR:
o Addition of any new invested premium amounts.
o Addition of any increase due to investment results of the chosen variable
investment options.
o Addition of guaranteed interest at an effective annual rate of 4% (plus any
excess interest if applicable) on the portion of the Contract Fund allocated
to the fixed-rate option.
o Addition of guaranteed interest at an effective annual rate of 4% on the
amount of any Contract loan. (Separately, interest charged on the loan
accrues at an effective annual rate of 4.5% or 5%. See CONTRACT LOANS, page
23.)
o Subtraction of any decrease due to investment results of the chosen variable
investment options.
o Subtraction of any amount withdrawn.
o Subtraction of the charges listed below, as applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAILY CHARGES
o Management fees and expenses are deducted from the assets of the Funds.
o A daily charge equivalent to an annual rate of up to 0.9% is deducted from
the assets of the variable investment options for mortality and expense
risks.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MONTHLY CHARGES
o The Contract Fund is reduced by a monthly administrative charge of up to $10
plus $0.07 per $1,000 of the basic insurance amount; for Contract years
after the first, the $0.07 per $1,000 portion of the charge is reduced to
$0.01 per $1,000 of the basic insurance amount.
o A cost of insurance ("COI") charge is deducted.
o The Contract Fund is reduced by a Death Benefit Guarantee risk charge of
$0.01 per $1,000 of the basic insurance amount.
o If the Contract includes riders, a deduction from the Contract Fund will be
made for charges applicable to those riders.
o If the rating class of an insured results in an extra charge, that charge
will be deducted from the Contract Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
POSSIBLE ADDITIONAL CHARGES
o If during the first 10 Contract years the Contract lapses or is surrendered
or if the basic insurance amount is decreased (including as a result of a
withdrawal), a contingent deferred sales charge is assessed. For insureds
age 76 or less at issue, the maximum contingent deferred sales charge is 26%
of the target level premium (see PREMIUMS, page 9) for the Contract. For
insureds age 77 or greater at issue, the maximum charge will be a smaller
percentage of the target level premium for the Contract. The charge is level
for six years and then declines monthly to zero at the end of the 10th
Contract year.
o If during the first 10 Contract years the Contract lapses or is surrendered
or if the basic insurance amount is decreased (including as a result of a
withdrawal), a contingent deferred administrative charge is assessed. This
charge equals the lesser of: (a) $5 per $1,000 of basic insurance amount;
and (b) $500. It is level for six years and then declines monthly until it
reaches zero at the end of the 10th Contract year.
o An administrative charge of up to $25 is made in connection with any
withdrawals.
o An administrative charge of up to $25 is made for any change in basic
insurance amount.
o An administrative charge of up to $25 is made for each transfer exceeding
twelve in any Contract year.
- --------------------------------------------------------------------------------
There are two types of death benefit available. You may choose a Contract with a
Type A (fixed) death benefit under which the cash surrender value varies daily
with investment experience, and the death benefit generally stays
3
<PAGE>
at the basic insurance amount chosen by you at the outset. However, the Contract
Fund may grow to a point where the death benefit may increase and vary with
investment experience. If you choose a Contract with a Type B (variable) death
benefit, the cash surrender value and the death benefit both vary with
investment experience. For either type of death benefit, as long as the Contract
is in force, the death benefit will never be less than the basic insurance
amount shown in your Contract. See TYPE OF DEATH BENEFIT, page 8.
The Contract is a flexible premium contract - there are no scheduled premiums.
Except for the minimum initial premium, and subject to a minimum of $25 per
subsequent payment, the timing and amount of premium payments are discretionary.
The Contract will remain in force provided that the Contract Fund less any
applicable surrender charges is greater than zero and more than any Contract
debt. However, if the premiums you pay on an accumulated basis are high enough,
and Contract debt does not equal or exceed the Contract Fund less any applicable
surrender charges, Pruco Life guarantees that your Contract will not lapse even
if investment experience is very unfavorable and the Contract Fund drops below
zero. Each Contract generally provides two guarantees, one that lasts for the
lifetime of the Contract and another that lasts for a stated, generally lengthy
period. The guarantee for the life of the Contract requires higher premium
payments. See PREMIUMS, page 9, DEATH BENEFIT GUARANTEE, page 10 and LAPSE AND
REINSTATEMENT, page 26.
While you decide when to make premium payments and, subject to a $25 minimum, in
what amounts, we do offer and suggest regular billing of premiums. When applying
for the Contract, you should discuss with your Pruco Life representative if you
would like to be billed, how frequently and for what amount. See PREMIUMS, page
9.
For a limited time, a Contract may be returned for a refund in accordance with
the terms of its "free look" provision. See SHORT-TERM CANCELLATION RIGHT OR
"FREE LOOK," page 8.
This Summary provides only a brief overview of the more significant aspects of
the Contract. Further detail is provided in the subsequent sections of this
prospectus and in the Contract. The Contract, including the application attached
to it, constitutes the entire agreement between you and Pruco Life and should be
retained.
For the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, see page 1.
GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE
COMPANY, THE PRUCO LIFE VARIABLE APPRECIABLE
ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONS
AVAILABLE UNDER THE CONTRACT
PRUCO LIFE INSURANCE COMPANY
Pruco Life Insurance Company ("Pruco Life") is a stock life insurance company,
organized in 1971 under the laws of the State of Arizona. It is licensed to sell
life insurance and annuities in the District of Columbia, Guam, and in all
states except New York.
Pruco Life is a wholly-owned subsidiary of Prudential, a mutual insurance
company founded in 1875 under the laws of the State of New Jersey. As of
December 31, 1996, Prudential has invested over $442 million in Pruco Life in
connection with Pruco Life's organization and operation. Prudential may from
time to time make additional capital contributions to Pruco Life as needed to
enable it to meet its reserve requirements and expenses in connection with its
business. Prudential is under no obligation to make such contributions and its
assets do not back the benefits payable under the Contract. Pruco Life's
consolidated financial statements begin on page B1 and should be considered only
as bearing upon Pruco Life's ability to meet its obligations under the
Contracts.
THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
The Pruco Life Variable Appreciable Account (the "Account") was established on
January 13, 1984 under Arizona law as a separate investment account. The Account
meets the definition of a "separate account" under the federal securities laws.
The Account holds assets that are segregated from all of Pruco Life's other
assets.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Pruco Life. Pruco Life is also the legal
owner of the assets in the Account. Pruco Life will maintain assets in the
Account with a total market value at least equal to the reserve and other
liabilities relating to the variable benefits attributable to the Account. These
assets may not be charged with liabilities which arise from any other business
Pruco Life conducts. In addition to these assets, the Account's assets may
include funds contributed by Pruco Life to commence operation of the Account and
may include accumulations of the charges Pruco Life makes against the Account.
From time to time these additional assets will be transferred to Pruco Life's
general account.
4
<PAGE>
Before making any such transfer, Pruco Life will consider any possible adverse
impact the transfer might have on the Account.
The Account is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 ("1940 Act") as a unit investment
trust, which is a type of investment company. This does not involve any
supervision by the SEC of the management or investment policies or practices of
the Account. For state law purposes, the Account is treated as a part or
division of Pruco Life. There are currently 15 available subaccounts within the
Account, each of which invests in a single corresponding portfolio of the Funds.
Additional subaccounts may be added in the future. The Account's financial
statements begin on page A1.
THE FUNDS
The following is a list of the Funds, the portfolios' investment objectives and
investment advisors:
THE PRUDENTIAL SERIES FUND, INC. (THE "SERIES FUND"):
o MONEY MARKET PORTFOLIO: The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations. There are no assurances that this
portfolio will maintain a stable net asset value.
o DIVERSIFIED BOND PORTFOLIO: A high level of income over the longer term while
providing reasonable safety of capital through investment primarily in
readily marketable intermediate and long-term fixed income securities that
provide attractive yields but do not involve substantial risk of loss of
capital through default.
o CONSERVATIVE BALANCED PORTFOLIO: Achievement of a favorable total investment
return consistent with a portfolio having a conservatively managed mix of
money market instruments, fixed income securities, and common stocks, in
proportions believed by the investment manager to be appropriate for an
investor desiring diversification of investment who prefers a relatively
lower risk of loss than that associated with the Flexible Managed Portfolio
while recognizing that this reduces the chances of greater appreciation.
o FLEXIBLE MANAGED PORTFOLIO: Achievement of a high total return consistent
with a portfolio having an aggressively managed mix of money market
instruments, fixed income securities, and common stocks, in proportions
believed by the investment manager to be appropriate for an investor desiring
diversification of investment who is willing to accept a relatively high
level of loss in an effort to achieve greater appreciation.
o HIGH YIELD BOND PORTFOLIO: Achievement of a high total return through
investment in high yield/high risk fixed income securities in the medium to
lower quality ranges.
o STOCK INDEX PORTFOLIO: Achievement of investment results that correspond to
the price and yield performance of publicly traded common stocks in the
aggregate by following a policy of attempting to duplicate the price and
yield performance of the Standard & Poor's 500 Composite Stock Price Index.
o EQUITY INCOME PORTFOLIO: Both current income and capital appreciation through
investment primarily in common stocks and convertible securities that provide
favorable prospects for investment income returns above those of the Standard
& Poor's 500 Composite Stock Price Index or the New York Stock Exchange
Composite Index.
o EQUITY PORTFOLIO: Capital appreciation through investment primarily in common
stocks of companies, including major established corporations as well as
smaller capitalization companies, that appear to offer attractive prospects
of price appreciation that are superior to broadly-based stock indices.
Current income, if any, is incidental.
o PRUDENTIAL JENNISON PORTFOLIO: Long-term growth of capital through
investment primarily in equity securities of established companies with
above-average growth prospects. Current income, if any, is incidental.
o GLOBAL PORTFOLIO: Long-term growth of capital through investment primarily
in common stock and common stock equivalents of foreign and domestic issuers.
Current income, if any, is incidental.
Prudential is the investment advisor for the assets of each of the portfolios of
the Series Fund. Prudential's principal business address is Prudential Plaza,
Newark, New Jersey 07102-3777. Prudential has a Service Agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. In
addition, Prudential has entered into a Subadvisory Agreement with its
wholly-owned subsidiary Jennison Associates Capital Corporation ("Jennison"),
under which Jennison furnishes investment advisory services in connection with
the management of the Prudential Jennison Portfolio.
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The availability of the following five funds is subject to state approval:
AIM VARIABLE INSURANCE FUNDS, INC.:
o AIM V.I. VALUE FUND. To achieve long-term growth of capital by investing
primarily in equity securities judged by A I M Advisors, Inc. to be
undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio.
A I M Advisors, Inc. ("AIM") is the investment advisor for this fund. The
principal business address for AIM is 11 Greenway Plaza, Suite 100, Houston,
Texas 77046-1173.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
o AMERICAN CENTURY VP VALUE FUND. Seeks long-term capital growth with income as
a secondary objective. The fund seeks to achieve its objective by investing
primarily in equity securities of well-established companies with
intermediate-to-large market capitalizations that are believed by management
to be undervalued at the time of purchase.
American Century Investment Management, Inc. ("ACIM") is the investment advisor
for this fund. ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. The Principal Underwriter of the fund
is American Century Services, Inc., located at 4500 Main Street, Kansas City,
Missouri 64111.
JANUS ASPEN SERIES:
o GROWTH PORTFOLIO. Seeks long-term growth of capital in a manner consistent
with the preservation of capital.
Janus Capital Corporation is the investment adviser and is responsible for the
day-to-day management of the portfolio and other business affairs of the
portfolio. Janus Capital Corporation's principal business address is 100
Fillmore Street, Denver, Colorado 80206-4928.
MFS VARIABLE INSURANCE TRUST:
o EMERGING GROWTH SERIES. Seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the Series' investment objective of long-term growth of capital.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to this MFS Series. The principal business address for the
Massachusetts Financial Services Company is 500 Boylston Street, Boston,
Massachusetts 02116.
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
o INTERNATIONAL STOCK PORTFOLIO. Long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies.
Rowe Price-Fleming International, Inc. is the Investment Manager for this fund.
The principal business address for Rowe Price-Fleming International, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202.
Further information about Fund portfolios can be found in the attached
prospectuses and their statements of additional information for each Fund.
The investment advisors with respect to the Funds charge a daily investment
management fee as compensation for their services, as set forth in the table in
the DEDUCTIONS FROM PORTFOLIOS section, page 13 and as more fully described in
the prospectus for each Fund.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual funds. Although neither the companies which
invest in the Funds nor the Funds currently foresee any such disadvantage, the
Board of Directors for each Fund intends to monitor events in order to identify
any material conflict between variable life insurance and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. Material conflicts could result from such things as: (1)
changes in state insurance law; (2) changes in federal income tax
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law; (3) changes in the investment management of any portfolio of the Funds; or
(4) differences between voting instructions given by variable life insurance and
variable annuity contract owners.
Pruco Life may be compensated by an affiliate of each of the Funds (other than
those in the Prudential Series Fund) based upon an annual percentage of the
average assets held in the Fund by Pruco Life under the Contracts. These
percentages vary by Fund, and reflect administrative and other services provided
by Pruco Life.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, MANAGEMENT,
POLICIES, AND RESTRICTIONS, THEIR EXPENSES, THE RISKS ATTENDANT TO INVESTMENT
THEREIN--INCLUDING ANY RISKS ASSOCIATED WITH INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO, AND ALL OTHER ASPECTS OF THEIR OPERATION IS CONTAINED IN THE ATTACHED
PROSPECTUSES FOR EACH FUND AND IN THE RELATED STATEMENTS OF ADDITIONAL
INFORMATION, WHICH SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS. THERE IS
NO ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE MET.
THE FIXED-RATE OPTION
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE FIXED-RATE
OPTION UNDER THE CONTRACT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND THE GENERAL ACCOUNT HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY
UNDER THE INVESTMENT COMPANY ACT OF 1940. ACCORDINGLY, INTERESTS IN THE
FIXED-RATE OPTION ARE NOT SUBJECT TO THE PROVISIONS OF THESE ACTS, AND PRUCO
LIFE HAS BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED-RATE
OPTION. DISCLOSURE REGARDING THE FIXED-RATE OPTION MAY, HOWEVER, BE SUBJECT TO
CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS RELATING TO
THE ACCURACY AND COMPLETENESS OF STATEMENTS MADE IN PROSPECTUSES.
You may elect to allocate, either initially or by transfer, all or part of the
amount credited under the Contract to a fixed-rate option, and the amount so
allocated or transferred becomes part of Pruco Life's general assets. Sometimes
this is referred to as Pruco Life's general account, which consists of all
assets owned by Pruco Life other than those in the Account and in other separate
accounts that have been or may be established by Pruco Life. Subject to
applicable law, Pruco Life has sole discretion over the investment of the assets
of the general account, and Contract owners do not share in the investment
experience of those assets. Instead, Pruco Life guarantees that the part of the
Contract Fund allocated to the fixed-rate option will accrue interest daily at
an effective annual rate that Pruco Life declares periodically, but not less
than an effective annual rate of 4%. Currently, declared interest rates remain
in effect from the date money is allocated to the fixed-rate option until the
first day of the same month in the following year. At that time a new crediting
rate will apply to that money until the first day of the same month in the next
year. Then a new declared crediting rate will apply to that money for the
remainder of that calendar year. Thereafter a new crediting rate will be
declared each year for that money and it will remain in effect for the entire
calendar year. Pruco Life reserves the right to change this practice. Pruco Life
is not obligated to credit interest at a higher rate than 4%, although in its
sole discretion it may do so. Different crediting rates may be declared for
different portions of the Contract fund allocated to the fixed-rate option. On
request, you will be advised of the interest rates that currently apply to your
Contract.
Transfers from the fixed-rate option are subject to strict limits, see
TRANSFERS, page 12. The payment of any cash surrender value attributable to the
fixed-rate option may be delayed up to six months, see WHEN PROCEEDS ARE PAID,
page 20.
WHICH INVESTMENT OPTION SHOULD BE SELECTED?
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of short or
long-term debt securities, even though common stocks have been subject to much
more dramatic changes in value over short periods of time. Accordingly,
portfolios such as the Stock Index, Equity Income, Equity, Prudential Jennison,
Global, AIM V.I. Value Fund, American Century VP Value Fund, Janus Growth, MFS
Emerging Growth Series or T. Rowe Price International Stock may be desirable
options if you are willing to accept such volatility in your Contract values.
Each of these equity portfolios involves somewhat different policies and
investment risks.
You may prefer the somewhat greater protection against loss of principal (and
reduced chance of high total return) provided by the Diversified Bond Portfolio.
There may be times when you desire even greater safety of principal and may then
prefer the Money Market Portfolio or the fixed-rate option, recognizing that the
level of short-term rates may change rather rapidly. If you are willing to take
risks and possibly achieve a higher total return, you may prefer the High Yield
Bond Portfolio, recognizing that with higher yielding, lower quality bonds the
risks are greater. You may wish to divide your invested premium among two or
more of the portfolios. You may wish to obtain diversification by relying on
Prudential's judgment for an appropriate asset mix by choosing the Conservative
Balanced or Flexible Managed Portfolio.
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You should make a choice that takes into account how willing you are to accept
investment risks, the manner in which your other assets are invested, and your
own predictions about what investment results are likely to be in the future.
Pruco Life does recommend AGAINST frequent transfers among the several options
as experience generally indicates that "market timing" investing, particularly
by non-professional investors, is likely to prove unsuccessful.
DETAILED INFORMATION FOR
PROSPECTIVE CONTRACT OWNERS
REQUIREMENTS FOR ISSUANCE OF A CONTRACT
The Contract may generally be issued on insureds below the age of 81. Currently,
the minimum basic insurance amount that can be applied for is $250,000. Before
issuing any Contract, Pruco Life requires evidence of insurability which may
include a medical examination. Non-smokers are offered the most favorable cost
of insurance rates. A higher cost of insurance rate and/or additional charge is
charged if an extra mortality risk is involved. These are the current
underwriting requirements. We reserve the right to change them on a
non-discriminatory basis.
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK"
Generally, you may return the Contract for a refund within 10 days after you
receive it, within 45 days after Part I of the application for insurance is
signed or within 10 days after Pruco Life mails or delivers a Notice of
Withdrawal Right, whichever is latest. Some states allow a longer period of time
during which a Contract may be returned for a refund. A refund can be requested
by mailing or delivering the Contract to the representative who sold it or to
the Home Office specified in the Contract. A Contract returned according to this
provision shall be deemed void from the beginning. You will then receive a
refund of all premium payments made, plus or minus any change due to investment
experience. However, if applicable law so requires and you exercise your
short-term cancellation right, you will receive a refund of all premium payments
made with no adjustment for investment experience.
TYPE OF DEATH BENEFIT
You may select either of two types of death benefit. Generally, a Contract with
a Type A (fixed) death benefit has a death benefit equal to the basic insurance
amount. The death benefit of this type does not vary with the investment
performance of the investment options selected by you, except in certain
circumstances. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY, page
16. Favorable investment results of the variable investment options to which the
assets related to the Contract are allocated and payment of additional premiums
will generally result in increases in the cash surrender value. See HOW A
CONTRACT'S CASH SURRENDER VALUE WILL VARY, page 16.
A Contract with a Type B (variable) death benefit has a death benefit which will
generally equal the basic insurance amount plus the Contract Fund. Since the
Contract Fund is a component of the death benefit, favorable investment
performance and payment of additional premiums generally result in an increase
in the death benefit as well as in the cash surrender value. Over time, however,
the increase in the cash surrender value will be less than under a Type A
(fixed) Contract. This is because, given two Contracts with the same basic
insurance amount and equal Contract Funds, generally the cost of insurance
charge for a Type B (variable) Contract will be greater. See HOW A CONTRACT'S
CASH SURRENDER VALUE WILL VARY, page 16 and HOW A TYPE B (VARIABLE) CONTRACT'S
DEATH BENEFIT WILL VARY, page 17. Unfavorable investment performance will result
in decreases in the death benefit and in the cash surrender value. But, as long
as the Contract is not in default, the death benefit may not fall below the
basic insurance amount stated in the Contract.
In choosing a death benefit type, you should also consider whether you intend to
use the withdrawal feature. Purchasers of Type A (fixed) Contracts should note
that any withdrawal may result in a reduction of the basic insurance amount and
the deduction of any applicable surrender charges. In addition, we will not
allow you to make a withdrawal that will decrease the basic insurance amount
below the minimum basic insurance amount. See WITHDRAWALS, page 18.
CHANGING THE TYPE OF DEATH BENEFIT
On or after the first Contract anniversary and subject to Pruco Life's approval,
you may change the type of death benefit. We will increase or decrease the basic
insurance amount so that the death benefit immediately after the
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change matches the death benefit immediately before the change. You should
consult your Pruco Life representative from time to time about the choices
available to you under the Contract.
If you are changing your Contract's type of death benefit from Type A (fixed) to
Type B (variable), we will reduce the basic insurance amount by the amount in
your Contract Fund on the date the change takes place. The basic insurance
amount after the change may not be lower than the minimum basic insurance amount
applicable to the Contract. If you are changing from a Type B (variable) to a
Type A (fixed) death benefit, we will increase the basic insurance amount by the
amount in your Contract Fund on the date the change takes place. This is
illustrated in the following chart.
--------------------------------------------------
CHANGING THE DEATH CHANGING THE DEATH
BENEFIT FROM BENEFIT FROM
TYPE A TYPE B TYPE B TYPE A
-- --
(FIXED) (VARIABLE) (VARIABLE) (FIXED)
- -------------------------------------------------------------------------------
BASIC INSURANCE
AMOUNT $300,000 -- $250,000 $250,000 -- $300,000
CONTRACT FUND $50,000 = $50,000 $50,000 = $50,000
DEATH BENEFIT $300,000 = $300,000 $300,000 = $300,000
- -------------------------------------------------------------------------------
Changing your Contract's type of death benefit from Type A (fixed) to Type B
(variable) during the first 10 Contract years may result in the assessment of
surrender charges. In addition, although we do not currently do so, we reserve
the right to make an administrative processing charge of up to $25 for any
change in basic insurance amount. See CHARGES AND EXPENSES, page 13.
To request a change, fill out an application for change which can be obtained
from your Pruco Life representative or any of our offices. If the change is
approved, we will recompute the Contract's charges and appropriate tables and
send you new Contract data pages. We may require you to send us your Contract
before making the change.
PREMIUMS
The Contract is a flexible premium contract. The minimum initial premium is due
on or before the Contract date. Thereafter, you decide when to make premium
payments and, subject to a $25 minimum, in what amounts. We reserve the right to
refuse to accept any payment that increases the death benefit by more than it
increases the Contract Fund. See HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT
WILL VARY, page 16 and HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL
VARY, page 17. There are circumstances under which the payment of premiums in
amounts that are too large may cause the Contract to be characterized, under the
Internal Revenue Code, as a Modified Endowment Contract, which could be
significantly disadvantageous. See TAX TREATMENT OF CONTRACT BENEFITS, page 24.
There are several types of "premiums" under the Contract, described below.
Understanding them will help you understand how the Contract works.
MINIMUM INITIAL PREMIUM -- the premium needed to start the Contract. There
is no insurance under this Contract unless the minimum initial premium is
paid.
GUIDELINE PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in force for the lifetime of the
insured regardless of investment performance, assuming no loans or
withdrawals. These guideline premiums will be higher for a Type B (variable)
Contract than for a Type A (fixed) Contract. For a Contract with no riders
or extra risk charges, these premiums will be level. If certain riders are
included, the guideline premium may increase each year. Payment of guideline
premiums at the beginning of each Contract year is one way to achieve the
Lifetime Death Benefit Guarantee Values shown on the Contract data pages.
See DEATH BENEFIT GUARANTEE, page 10. When you purchase a Contract, your
Pruco Life representative can tell you the amount[s] of the guideline
premium.
TARGET PREMIUMS -- the premiums that, if paid at the beginning of each
Contract year, will keep the Contract in force during the Limited Death
Benefit Guarantee period regardless of investment performance, assuming no
loans or withdrawals. As is the case with the guideline premium, for a
Contract with no riders or extra risk charges, these premiums will be level.
If certain riders are included, the target premium may increase each
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year. Payment of target premiums at the beginning of each Contract year is
one way to achieve the Limited Death Benefit Guarantee Values shown on the
Contract data pages. At the end of the Limited Death Benefit Guarantee
period, continuation of the Contract will depend on the Contract Fund having
sufficient money to cover all charges or meeting the conditions of the
Lifetime Death Benefit Guarantee. See DEATH BENEFIT GUARANTEE, below. When
you purchase a Contract, your Pruco Life representative can tell you the
amount[s] of the target premium.
TARGET LEVEL PREMIUM -- the target premium at issue minus any premiums
associated with riders or with aviation, avocation, occupational or
temporary extra insurance charges. We use the target level premium in
calculating the sales load portion of surrender charges. See CHARGES AND
EXPENSES, page 13.
We can bill you for the amount you select annually, semi-annually, quarterly or
monthly. Because the Contract is a flexible premium contract, there are no
scheduled premium due dates. When you receive a premium notice, you are not
required to pay this amount. The Contract will remain in force if either the
Contract Fund less any applicable surrender charges is greater than zero and
more than any Contract debt or if you have paid sufficient premiums on an
accumulated basis to meet the conditions of the Death Benefit Guarantee and
Contract debt is not equal to or greater than the Contract Fund less any
applicable surrender charges. You may also pay premiums automatically through
pre-authorized transfers from a bank checking account. If you elect to use this
feature, you choose the frequency (monthly, quarterly, semi-annually or
annually) and the amount of premiums paid.
When you apply for the Contract, you should discuss with your Pruco Life
representative how frequently you would like to be billed (if at all) and for
what amount.
DEATH BENEFIT GUARANTEE
Although you decide what premium amounts you wish to pay, payment of sufficient
premium, on an accumulated basis, will guarantee that your policy will not lapse
and a death benefit will be paid upon the death of the insured. This will be
true even if, because of unfavorable investment experience, your Contract Fund
value drops to zero. However, the guarantee is contingent upon Contract debt not
being equal to or greater than the Contract Fund less any applicable surrender
charges. See CONTRACT LOANS, page 23. You should consider the importance of the
Death Benefit Guarantee to you when deciding on what amounts of premiums to pay
into the Contract.
For purposes of determining this guarantee, we generally calculate, and show in
the Contract data pages, two sets of amounts - the Lifetime Death Benefit
Guarantee Values and Limited Death Benefit Guarantee Values. These are not cash
values that you can realize by surrendering the Contract, nor are they death
benefits payable. They are values used solely to determine if a Death Benefit
Guarantee is in effect. The Lifetime Death Benefit Guarantee Values are shown
for the lifetime of the Contract. The Limited Death Benefit Guarantee Values are
lower, but only apply for the length of the Limited Death Benefit Guarantee
period.
The length of the Limited Death Benefit Guarantee period is determined on a case
by case basis depending on things like the insured's age, sex (except where
unisex rates apply), smoker/non-smoker status, death benefit type and extra
rating class, if any. The length of the Limited Death Benefit Guarantee period
applicable to your particular Contract is shown on the Contract data pages. For
certain insureds, generally those who are older and/or in a substandard risk
classification, the Limited Death Benefit Guarantee period may be of short
duration or unavailable.
At the Contract date, and on each Monthly date, we calculate your Contract's
"Accumulated Net Payments" as of that date. Accumulated Net Payments equal the
premiums you paid, accumulated at an effective annual rate of 4%, less
withdrawals also accumulated at 4%.
At each Monthly date within the Limited Death Benefit Guarantee period, we will
compare your Accumulated Net Payments to the Limited Death Benefit Guarantee
Value as of that date. At each Monthly date after the Limited Death Benefit
Guarantee period, we will compare your Accumulated Net Payments to the Lifetime
Death Benefit Guarantee Value as of that date. If your Accumulated Net Payments
equal or exceed the applicable (Lifetime or Limited) Death Benefit Guarantee
Value and Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, then the Contract is kept in force, regardless of
the amount in the Contract Fund.
The Contract data pages show Lifetime Death Benefit Guarantee Values and Limited
Death Benefit Guarantee Values as of Contract anniversaries. Values for
non-anniversary Monthly dates will reflect the number of months elapsed between
Contract anniversaries.
Guideline and target premiums are premium levels that, if paid at the start of
each Contract year, correspond to the Lifetime and Limited Death Benefit
Guarantee Values, respectively (assuming no withdrawals or loans). See
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PREMIUMS, page 9. They are one way of reaching the Death Benefit Guarantee
Values; they are certainly not the only way.
Here is a table of typical guideline and target premiums along with
corresponding Limited Death Benefit Guarantee periods. The examples assume the
insured is a male, non-smoker, with no extra risk or substandard ratings, and no
extra benefit riders added to the Contract.
- --------------------------------------------------------------------------------
BASIC INSURANCE AMOUNT -- $250,000
ILLUSTRATIVE ANNUAL PREMIUMS
- --------------------------------------------------------------------------------
TARGET PREMIUM
TYPE OF GUIDELINE PREMIUM CORRESPONDING TO THE
AGE OF DEATH CORRESPONDING TO LIMITED DEATH BENEFIT
INSURED BENEFIT THE LIFETIME DEATH GUARANTEE VALUES AND
AT ISSUE CHOSEN BENEFIT GUARANTEE NUMBER OF YEARS OF
VALUES GUARANTEE
- --------------------------------------------------------------------------------
35 Type A (fixed) $ 3,532.50 $ 2,007.50 for 35 years
35 Type B (variable) $ 12,037.50 $ 2,007.50 for 33 years
45 Type A (fixed) $ 5,462.50 $ 2,977.50 for 25 years
45 Type B (variable) $ 17,147.50 $ 2,977.50 for 23 years
55 Type A (fixed) $ 8,897.50 $ 5,770.00 for 20 years
55 Type B (variable) $ 25,607.50 $ 5,770.00 for 18 years
- --------------------------------------------------------------------------------
The Death Benefit Guarantee allows considerable flexibility as to the timing of
premium payments. Your Pruco Life representative can supply sample illustrations
of various premium amount and frequency combinations that correspond to the
Death Benefit Guarantee Values.
You should consider carefully the value of maintaining the guarantee. It may be
preferable for you to pay generally higher premiums in all years, rather than
trying to make such payments on an as needed basis if the death benefit
guarantee is desired for lifetime protection. For example, if you pay only
enough premium to meet the Limited Death Benefit Guarantee Values, a substantial
amount may be required to meet the Lifetime Death Benefit Guarantee Values in
order to continue the guarantee at the end of the Limited Death Benefit
Guarantee period. In addition, it is possible that the payment required to
continue the guarantee after the Limited Death Benefit Guarantee period could
cause the Contract to become a Modified Endowment Contract. See TAX TREATMENT OF
CONTRACT BENEFITS, page 24.
CONTRACT DATE
When the first premium payment is paid with the application for a Contract, the
Contract date will ordinarily be the later of the date of the application or the
date of the medical examination. If the first premium is not paid with the
application, the Contract date will be the date on which the first premium is
paid and the Contract is delivered. Under certain circumstances, we may allow
the Contract to be backdated for the purpose of lowering the insured's issue
age, but only to a date not earlier than six months prior to the date of the
application. This may be advantageous for some Contract owners as a lower issue
age may result in lower current charges. For a Contract that is backdated, we
will credit the initial premium as of the date of receipt and will deduct any
charges due on or before that date.
ALLOCATION OF PREMIUMS
On the Contract date, the charge for sales expenses and the charge for taxes
attributable to premiums (in Oregon this is called a premium based
administrative charge) are deducted from the initial premium. The remainder of
the initial premium will be allocated on the Contract date among the subaccounts
and/or the fixed-rate option according to your desired allocation as specified
in the application form and the first monthly deductions are made. To the extent
that the receipt of the first premium precedes the Contract date, there will be
a period during which the Contract owner's initial premium will not be invested.
See CHARGES AND EXPENSES, page 13.
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The charge for sales expenses and the charge for taxes attributable to premiums
(in Oregon this is called a premium based administrative charge) also apply to
all subsequent premium payments. The remainder will be invested as of the end of
the valuation period in which it is received at a Home Office in accordance with
the allocation you previously designated. Provided the Contract is not in
default, you may change the way in which subsequent premiums are allocated by
giving written notice to a Home Office or by telephoning that Home Office,
provided you are enrolled to use the Telephone Transfer System. There is no
charge for reallocating future premiums. All percentage allocations must be in
whole numbers. For example, 33% can be selected but 331/3% cannot. Of course,
the total allocation to all selected investment options must equal 100%.
TRANSFERS
You may, up to twelve times each Contract year, transfer amounts from one
subaccount to another subaccount or to the fixed-rate option without charge.
There is an administrative charge of up to $25 for each transfer made exceeding
twelve in any Contract year. All or a portion of the amount credited to a
subaccount may be transferred.
Transfers will take effect as of the end of the valuation period in which a
proper transfer request is received at a Home Office. The request may be in
terms of dollars, such as a request to transfer $5,000 from one subaccount to
another, or may be in terms of a percentage reallocation among subaccounts. In
the latter case, as with premium reallocations, the percentages must be in whole
numbers. You may transfer amounts by proper written notice to a Home Office or
by telephone, provided you are enrolled to use the Telephone Transfer System.
You will automatically be enrolled to use the Telephone Transfer System unless
the Contract is jointly owned or you elect not to have this privilege. Telephone
transfers may not be available on policies that are assigned (see ASSIGNMENT,
page 26), depending on the terms of the assignment.
We will use reasonable procedures, such as asking you to provide certain
personal information provided on your application for insurance, to confirm that
instructions given by telephone are genuine. We will not be held liable for
following telephone instructions that we reasonably believe to be genuine. Pruco
Life cannot guarantee that you will be able to get through to complete a
telephone transfer during peak periods such as periods of drastic economic or
market change.
Only one transfer from the fixed-rate option will be permitted during each
Contract year and the maximum amount which may be transferred out of the
fixed-rate option each year is the greater of: (a) 25% of the amount in the
fixed-rate option; and (b) $2,000. These limits are subject to change in the
future. We may waive these restrictions for limited periods of time in a
non-discriminatory way, (e.g., when interest rates are declining).
DOLLAR COST AVERAGING
As an administrative practice, we are currently offering a feature called Dollar
Cost Averaging ("DCA"). Under this feature, either fixed dollar amounts or a
percentage of the amount designated for use under the DCA option will be
transferred periodically from the Money Market Subaccount into other subaccounts
available under the Contract, excluding the fixed-rate option. You may choose to
have periodic transfers made monthly, quarterly, semi-annually or annually.
Each automatic transfer will take effect as of the end of the valuation period
on the date coinciding with the periodic timing you designate provided the New
York Stock Exchange is open on that date. If the New York Stock Exchange is not
open on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. Automatic transfers will continue until: (1) $50
or less remains of the amount designated for Dollar Cost Averaging, at which
time the remaining amount will be transferred; or (2) you give us notification
of a change in DCA allocation or cancellation of the feature. Currently, a
transfer that occurs under the DCA feature is not counted towards the twelve
free transfers permitted each Contract year. We reserve the right to change this
practice, modify the requirements or discontinue the feature.
AUTO-REBALANCING
As an administrative practice, we are currently offering a feature called
Auto-Rebalancing. This feature allows you to automatically rebalance subaccount
assets at specified intervals based on percentage allocations that you choose.
For example, suppose your initial investment allocation of variable investment
options X and Y is split 40% and 60%, respectively. Then, due to investment
results, that split changes. You may instruct that those assets be rebalanced to
your original or different allocation percentages.
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Auto-Rebalancing can be performed on a monthly, quarterly, semi-annual or annual
basis. Each rebalance will take effect as of the end of the valuation period on
the date coinciding with the periodic timing you designate provided the New York
Stock Exchange is open on that date. If the New York Stock Exchange is not open
on that date, or if the date does not occur in that particular month, the
transfer will take effect as of the end of the valuation period which
immediately follows that date. The fixed-rate option cannot participate in this
administrative procedure. Currently, a transfer that occurs under the
Auto-Rebalancing feature is not counted towards the twelve free transfers
permitted each Contract year. We reserve the right to change this practice,
modify the requirements or discontinue the feature.
CHARGES AND EXPENSES
This section provides a detailed description of each charge that is described
briefly in the chart on page 2, and an explanation of the purpose of the charge.
In several instances we will use the terms "maximum charge" and "current
charge." The "maximum charge," in each instance, is the highest charge that
Pruco Life is entitled to make under the Contract. The "current charge" is the
lower amount that Pruco Life is now charging. However, if circumstances change,
Pruco Life reserves the right to increase each current charge, up to but to no
more than the maximum charge, without giving any advance notice.
DEDUCTIONS FROM PREMIUM PAYMENTS
(a) A charge of up to 7.5% is deducted from each premium for taxes attributable
to premiums (in Oregon, this is called a premium based administrative
charge). For these purposes, "taxes attributable to premiums" shall include
any federal, state or local income, premium, excise, business or any other
type of tax (or component thereof) measured by or based upon the amount of
premium received by Pruco Life. That charge is made up of two parts which
currently equal a total of 3.75% of the premiums received. The first part is
a charge for state and local premium taxes. The current amount for this
first part is 2.5% of the premium. Tax rates vary from jurisdiction to
jurisdiction and generally range from 0.75% to 5%. Pruco Life may collect
more for this charge than it actually pays for state and local premium
taxes. The second part is for federal income taxes measured by premiums and
it is currently equal to 1.25% of the premium. Pruco Life believes that this
charge is a reasonable estimate of an increase in its federal income taxes
resulting from a 1990 change in the Internal Revenue Code. It is intended to
recover this increased tax.
(b) A charge of up to 4% is deducted from each premium payment for sales
expenses. This charge, often called a sales load, is deducted to compensate
us for things like the costs Pruco Life incurs in selling the Contracts,
including commissions, advertising and the printing and distribution of
prospectuses and sales literature.
Currently, the charge is equal to 4% of premiums paid in each Contract year
up to the amount of the target premium (see PREMIUMS, page 9) and 0% of
premiums paid in excess of this amount. Consequently, paying more than this
amount in any Contract year could reduce your total sales load. For example,
assume that a Contract with no riders or extra insurance charges has a
target premium of $2,007.50 and the Contract owner would like to pay 10
target premiums. If the Contract owner paid $4,015 (two times the amount of
the target premium in every other policy year up to the ninth year (i.e. in
years 1, 3, 5, 7, 9), the sales load charge would be $401.50. If the
Contract owner paid $2,007.50 in each of the first 10 policy years, the
total sales load would be $803.
Attempting to structure the timing and amount of premium payments to reduce
the potential sales load may increase the risk that your Contract will lapse
without value. Delaying the payment of target premium amounts to later years
will adversely affect the Death Benefit Guarantee if the accumulated premium
payments do not reach the accumulated values shown under your Contract's
Limited Death Benefit Guarantee Values. See DEATH BENEFIT GUARANTEE, page
10. In addition, there are circumstances where payment of premiums that are
too large may cause the Contract to be characterized as a Modified Endowment
Contract, which could be significantly disadvantageous. See TAX TREATMENT OF
CONTRACT BENEFITS, page 24.
DEDUCTIONS FROM PORTFOLIOS
An investment advisory fee is deducted daily from each portfolio of the Funds at
a rate, on an annualized basis, from 0.35% for the Stock Index Portfolio to
1.05% for the T. Rowe Price International Stock Portfolio. The
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expenses incurred in conducting the investment operations of the portfolios
(such as custodian fees and preparation and distribution of annual reports) are
paid out of the portfolio's income. These expenses also vary from portfolio to
portfolio.
The total expenses of each portfolio for the year 1996 expressed as a percentage
of the average assets during the year are shown below:
- --------------------------------------------------------------------------------
Investment Other Total
PORTFOLIO Advisory Expenses Expenses
Fee
- --------------------------------------------------------------------------------
SERIES FUND
Money Market 0.40% 0.04% 0.44%
Diversified Bond 0.40% 0.05% 0.45%
Conservative Balanced 0.55% 0.04% 0.59%
Flexible Managed 0.60% 0.04% 0.64%
High Yield Bond 0.55% 0.08% 0.63%
Stock Index 0.35% 0.05% 0.40%
Equity Income 0.40% 0.05% 0.45%
Equity 0.45% 0.05% 0.50%
Prudential Jennison 0.60% 0.06% 0.66%
Global 0.75% 0.17% 0.92%
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Value Fund 0.64% 0.09% 0.73%
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
VP Value Portfolio (1) 1.00% 0.00% 1.00%
JANUS ASPEN SERIES
Growth Portfolio (2) 0.65% 0.04% 0.69%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series 0.75% 0.25% 1.00%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock Portfolio (3) 1.05% 0.00% 1.05%
- --------------------------------------------------------------------------------
(1) Fees are all-inclusive.
(2) The fees and expenses in the table above are based on gross expenses of the
Portfolio before expense offset arrangements for the fiscal year ended
December 31, 1996. The information for the Portfolio is net of fee waivers
or reductions from Janus Capital. Fee reductions for the Portfolio reduce
the management fee to the level of the corresponding Janus retail fund.
Other waivers, if applicable, are first applied against the management fee
and then against other expenses. Without such waivers or reductions, the
Management Fee, Other Expenses and Total Operating Expenses for the
Portfolio would have been 0.79%, 0.04% and 0.83%, respectively. Janus
Capital may modify or terminate the waivers or reductions at any time upon
at least 90 days' notice to the Trustees.
(3) The investment management fee includes the ordinary expenses of operating
the Fund.
THE EXPENSES RELATING TO THE FUNDS (OTHER THAN THOSE OF THE SERIES FUND) HAVE
BEEN PROVIDED TO PRUCO LIFE BY THE FUNDS, AND HAVE NOT BEEN INDEPENDENTLY
VERIFIED BY PRUCO LIFE.
DAILY DEDUCTION FROM THE CONTRACT FUND
Each day a charge is deducted from the assets of each of the subaccounts (the
"variable investment options") in an amount equivalent to an effective annual
rate of up to 0.9%. Currently, we intend to charge 0.6%. This charge is intended
to compensate Pruco Life for assuming mortality and expense risks under the
Contract. The mortality risk assumed is that insureds may live for shorter
periods of time than Pruco Life estimated when it determined what mortality
charge to make. The expense risk assumed is that expenses incurred in issuing
and administering the Contract will be greater than Pruco Life estimated in
fixing its administrative charges. This charge is not assessed against amounts
allocated to the fixed-rate option.
MONTHLY DEDUCTIONS FROM CONTRACT FUND
The following monthly charges are deducted proportionately from the dollar
amounts held in each of the chosen investment option[s].
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a) An administrative charge based on the basic insurance amount is deducted.
The charge is intended to compensate us for things like processing claims,
keeping records and communicating with Contract owners. Currently, the
charge is equal to $10 per Contract plus $0.07 per $1,000 of basic insurance
amount in the first Contract year and $5 per Contract plus $0.01 per $1,000
of basic insurance amount in all subsequent years. Pruco Life reserves the
right, however to charge up to $10 per Contract plus $0.07 per $1,000 of
basic insurance amount in the first Contract year and $10 per Contract plus
$0.01 per $1,000 of basic insurance amount in all subsequent years.
For example, a Contract with a basic insurance amount of $250,000 would
currently have a charge equal to $10 plus $17.50 for a total of $27.50 per
month for the first Contract year and $5 plus $2.50 for a total of $7.50 per
month in all later years. The maximum charge for this same Contract would be
$10 plus $17.50 for a total of $27.50 per month during the first Contract
year. In later years, the maximum charge would be $10 plus $2.50 for a total
of $12.50 per month.
b) A cost of insurance ("COI") charge is deducted. When an insured dies, the
amount payable to the beneficiary (assuming there is no Contract debt) is
larger than the Contract Fund-- significantly larger if the insured dies in
the early years of a Contract. The cost of insurance charges collected from
all Contract owners enables Pruco Life to pay this larger death benefit. The
maximum COI charge is determined by multiplying the "net amount at risk"
under a Contract (the amount by which the Contract's death benefit exceeds
the Contract Fund) by maximum COI rates. The maximum COI rates are based
upon the 1980 Commissioners Standard Ordinary ("CSO") Tables and an
insured's current attained age, sex (except where unisex rates apply),
smoker/non-smoker status, and extra rating class, if any. At most ages,
Pruco Life's current COI rates are lower than the maximum rates.
c) A charge of $0.01 per $1,000 of basic insurance amount is made to compensate
Pruco Life for the risk we assume by providing the Death Benefit Guarantee
feature. See DEATH BENEFIT GUARANTEE, page 10.
d) You may add one or more of several riders to the Contract. Some riders are
charged for separately. If you add such a rider to the basic Contract,
additional charges will be deducted.
e) If an insured is in a substandard risk classification (for example, a person
in a hazardous occupation), additional charges will be deducted.
SURRENDER CHARGES
(a) An additional sales load is charged if during the first 10 Contract years
the Contract lapses or is surrendered or if the basic insurance amount is
decreased. It is not deducted from the death benefit if the insured should
die during this period. Upon lapse or surrender, for issue ages 76 or less,
this contingent deferred charge will be 26% of the lesser of the target
level premium for the Contract and the actual premiums paid. The rate used
in the calculation of this contingent deferred charge will be 22% for issue
ages 77-79, 16% for issue ages 80-83 and 13% for issue ages 84-85. The rate
used in the calculation of this contingent deferred charge will remain level
for six years. After six years, this charge will reduce monthly at a
constant rate until it reaches zero at the end of the 10th year. If during
the first 10 Contract years the basic insurance amount is decreased
[including as a result of a withdrawal or a change in the type of death
benefit from Type A (fixed) to Type B (variable)], we will deduct a
proportionate amount of the charge from the Contract Fund. The proportion we
use will be the amount by which the new basic insurance amount is less than
the basic insurance amount at issue (but not greater than the amount of the
decrease) divided by the basic insurance amount at issue.
(b) If during the first 10 Contract years the Contract lapses or is surrendered
or if the basic insurance amount is decreased, an administrative charge is
deducted to cover the cost of processing applications, conducting medical
examinations, determining insurability and the insured's rating class, and
establishing records. The charge is equal to the lesser of: (a) $5 per
$1,000 of basic insurance amount; and (b) $500. This charge is level for six
years. After six years, this charge will reduce monthly at a constant rate
until it reaches zero at the end of the 10th year. If the basic insurance
amount is decreased [including as a result of a withdrawal or a change in
the type of death benefit from Type A (fixed) to Type B (variable)] during
the first 10 Contract years, we will deduct a proportionate amount of the
charge from the Contract Fund. The proportion we use will be the amount by
which the new basic insurance amount is less than the basic insurance amount
at issue (but not greater than the amount of the decrease) divided by the
basic insurance amount at issue.
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TRANSACTION CHARGES
(a) An administrative processing charge of $10 is made in connection with each
withdrawal. We reserve the right to increase this charge up to $25 for each
withdrawal.
(b) No administrative processing charge is currently being made in connection
with a change in basic insurance amount. We reserve the right to make such a
charge in an amount of up to $25 for any change in basic insurance amount.
(c) An administrative processing charge of up to $25 is made for each transfer
exceeding 12 in any Contract year.
HOW A CONTRACT'S CASH SURRENDER VALUE WILL VARY
You may surrender the Contract for its cash surrender value (referred to as net
cash value in the Contract). The Contract's cash surrender value on any date
will be the Contract Fund less any applicable surrender charges and less any
Contract debt. See CONTRACT LOANS, page 23. The Contract Fund value changes
daily, reflecting increases or decreases in the value of the Fund portfolios in
which the assets of the subaccount[s] have been invested, interest credited on
any amounts allocated to the fixed-rate option, interest credited on any loan,
and by the daily asset charge for mortality and expense risks assessed against
the variable investment options. The Contract Fund value also changes to reflect
the receipt of premium payments and the monthly deductions described under
CHARGES AND EXPENSES, page 13. Upon request, Pruco Life will tell you the cash
surrender value of your Contract. It is possible for the cash surrender value of
a Contract to decline to zero because of unfavorable investment performance or
outstanding Contract debt.
The tables on pages T1 through T4 of this prospectus illustrate approximately
what the cash surrender values would be for representative Contracts paying
target premium amounts (see PREMIUMS, page 9), assuming hypothetical uniform
investment results in the Fund portfolios. Two of the tables assume current
charges will be made throughout the lifetime of the Contract and two tables
assume maximum charges will be made. See ILLUSTRATIONS OF CASH SURRENDER VALUES,
DEATH BENEFITS, AND ACCUMULATED PREMIUMS, page 21.
HOW A TYPE A (FIXED) CONTRACT'S DEATH BENEFIT WILL VARY
As noted above, there are two types of death benefit available under the
Contract: Type A, a generally fixed death benefit and Type B, a variable death
benefit. A Type B (variable) death benefit varies with investment performance
while a Type A (fixed) death benefit does not, unless it must be increased to
comply with the Internal Revenue Code's definition of life insurance.
Under a Type A (fixed) Contract, the death benefit is generally equal to the
basic insurance amount. See CONTRACT LOANS, page 23. If the Contract is kept in
force for several years, depending on how much premium you pay, and/or if
investment performance is reasonably favorable, the Contract Fund may grow to
the point where Pruco Life will increase the death benefit in order to ensure
that the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit under a Type A (fixed) Contract will always
be the greater of: (1) the basic insurance amount; and (2) the Contract Fund
before the deduction of any monthly charges due on that date, multiplied by the
attained age factor that applies. A listing of attained age factors can be found
on the data pages of your Contract. The latter provision ensures that the
Contract will always have a death benefit large enough so that the Contract will
be treated as life insurance for tax purposes under current law.
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The following table illustrates at different ages how the attained age factor
affects the death benefit for different Contract Fund amounts. The table assumes
a $250,000 Type A (fixed) Contract was issued when the insured was age 35.
TYPE A (FIXED) DEATH BENEFIT
- --------------------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------
THE THE CONTRACT
THE AND THE ATTAINED FUND AND THE
INSURED CONTRACT AGE MULTIPLIED BY DEATH
IS AGE FUND IS FACTOR THE ATTAINED BENEFIT IS
IS AGE FACTOR IS
- --------------------------------------------------------------------------------
40 $ 25,000 3.64 91,000 $250,000
40 $ 75,000 3.64 273,000 $273,000*
40 $100,000 3.64 364,000 $364,000*
- --------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $250,000
60 $125,000 1.96 245,000 $250,000
60 $150,000 1.96 294,000 $294,000*
- --------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $250,000
80 $200,000 1.28 256,000 $256,000*
80 $225,000 1.28 288,000 $288,000*
- --------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
- --------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 60, and the
Contract Fund is $150,000, the death benefit will be $294,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $1.96. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
HOW A TYPE B (VARIABLE) CONTRACT'S DEATH BENEFIT WILL VARY
Under a Type B (variable) Contract, while the Contract is in force, the death
benefit will never be less than the basic insurance amount, but will also vary,
immediately after it is issued, with the investment results of the selected
investment options. The death benefit may be further increased to ensure that
the Contract will satisfy the Internal Revenue Code's definition of life
insurance. Thus, the death benefit will always be the greater of: (1) the basic
insurance amount plus the Contract Fund; and (2) the Contract Fund before the
deduction of any monthly charges due on that date, multiplied by the attained
age factor that applies. For purposes of computing the death benefit, if the
Contract Fund is less than zero we will consider it to be zero. A listing of
attained age factors can be found on the data pages of your Contract. The latter
provision ensures that the Contract will always have a death benefit large
enough so that the Contract will be treated as life insurance for tax purposes
under current law.
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The following table illustrates various attained age factors and Contract Funds
and the corresponding death benefits. The table assumes a $250,000 Type B
(variable) Contract was issued when the insured was age 35.
TYPE B (VARIABLE) DEATH BENEFIT
- --------------------------------------------------------------------------------
IF THEN
- --------------------------------------------------------------------------------
THE THE CONTRACT
THE AND THE ATTAINED FUND AND THE
INSURED CONTRACT AGE MULTIPLIED BY DEATH
IS AGE FUND IS FACTOR THE ATTAINED BENEFIT IS
IS AGE FACTOR IS
- --------------------------------------------------------------------------------
40 $ 25,000 3.64 91,000 $275,000
40 $ 75,000 3.64 273,000 $325,000
40 $100,000 3.64 364,000 $364,000*
- --------------------------------------------------------------------------------
60 $ 75,000 1.96 147,000 $325,000
60 $125,000 1.96 245,000 $375,000
60 $150,000 1.96 294,000 $400,000
- --------------------------------------------------------------------------------
80 $150,000 1.28 192,000 $400,000
80 $200,000 1.28 256,000 $450,000
80 $225,000 1.28 288,000 $475,000
- --------------------------------------------------------------------------------
* Note that the death benefit has been increased to comply with the Internal
Revenue Code's definition of life insurance.
- --------------------------------------------------------------------------------
This means, for example, that if the insured has reached the age of 40, and the
Contract Fund is $100,000, the death benefit will be $364,000, even though the
original basic insurance amount was $250,000. In this situation, for every $1
increase in the Contract Fund, the death benefit will be increased by $3.64. We
reserve the right to refuse to accept any premium payment that increases the
death benefit by more than it increases the Contract Fund. If we exercise this
right, it may in certain situations result in the loss of the death benefit
guarantee.
SURRENDER OF A CONTRACT
A Contract may be surrendered for its cash surrender value while the insured is
living. To surrender a Contract, we may require you to deliver or mail the
Contract with a written request in a form that meets our needs, to a Home
Office. The cash surrender value of a surrendered Contract will be determined as
of the end of the valuation period in which such a request is received in the
Home Office. Surrender of a Contract may have tax consequences. See TAX
TREATMENT OF CONTRACT BENEFITS, page 24.
WITHDRAWALS
Under certain circumstances, you may withdraw a portion of the Contract's cash
surrender value without surrendering the Contract. The amount that you may
withdraw is limited by the requirement that the cash surrender value after the
withdrawal may not be zero or less than zero after deducting any charges
associated with the withdrawal. The amount withdrawn must be at least $500.
There is an administrative processing fee of $10 for each withdrawal. Pruco
Life, however, reserves the right to charge up to $25. An amount withdrawn may
not be repaid except as a premium subject to the applicable charges. Upon
request, we will tell you how much you may withdraw. Withdrawal of the cash
surrender value may have tax consequences. See TAX TREATMENT OF CONTRACT
BENEFITS, page 24.
Whenever a withdrawal is made, the death benefit will immediately be reduced by
at least the amount of the withdrawal. For a Type B (variable) Contract, this
will not change the basic insurance amount. However, under a Type A (fixed)
Contract, the resulting reduction in death benefit usually requires a reduction
in the basic insurance amount. If the basic insurance amount is decreased to an
amount less than the basic insurance amount at issue, a surrender charge may be
deducted. See CHARGES AND EXPENSES, page 13. No withdrawal will be permitted
under a Type A (fixed) Contract if it would result in a basic insurance amount
of less than the
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minimum basic insurance amount. It is important to note, however, that if the
basic insurance amount is decreased at any time during the life of the Contract,
there is a possibility that the Contract might be classified as a Modified
Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 24. Before
making any withdrawal which causes a decrease in basic insurance amount, you
should consult with your tax advisor and your Pruco Life representative.
When a withdrawal is made, the Contract Fund is reduced by the sum of the cash
withdrawn and the fee for the withdrawal. An amount equal to the reduction in
the Contract Fund will be withdrawn proportionally from the investment options
unless you direct otherwise.
Withdrawal of the cash surrender value increases the risk that the Contract Fund
may be insufficient to provide for benefits under the Contract. If such a
withdrawal is followed by unfavorable investment experience, the Contract may go
into default. Withdrawals may also affect whether a Contract is kept in force
under the Death Benefit Guarantee, since withdrawals decrease the accumulated
net payments. See DEATH BENEFIT GUARANTEE, page 10.
INCREASES IN BASIC INSURANCE AMOUNT
Subject to state approval and subject to the underwriting requirements
determined by Pruco Life, on or after the first Contract anniversary, you may
increase the amount of insurance by increasing the basic insurance amount of the
Contract. The following conditions must be met: (1) you must ask for the change
in a form that meets our needs; (2) the amount of the increase must be at least
equal to the minimum increase in basic insurance amount shown under CONTRACT
LIMITATIONS in the data pages of the Contract; (3) you must prove to us that the
insured is insurable for any increase; (4) the Contract must not be in default;
(5) we must not be paying premiums into the Contract as a result of the
insured's total disability; and (6) if we ask you to do so, you must send us the
Contract to be endorsed.
If we approve the change, we will send you new Contract data pages showing the
amount and effective date of the change and the recomputed charges, values and
limitations. If the insured is not living on the effective date, the change will
not take effect. No administrative processing charge is currently being made in
connection with an increase in basic insurance amount, but we reserve the right
to make such a charge in an amount of up to $25.
Each Contract owner who elects to increase the basic insurance amount of his or
her Contract will receive a "free-look" right which will apply only to the
increase in basic insurance amount, not the entire Contract. This right is
comparable to the right afforded to a purchaser of a new Contract. See
SHORT-TERM CANCELLATION RIGHT OR "FREE LOOK", page 8. The "free-look" right
would have to be exercised no later than 45 days after execution of the
application for the increase or, if later, within 10 days after either receipt
of the Contract as increased or receipt of the withdrawal right notice by the
owner.
An increase in basic insurance amount may impact the status of the Contract as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 24.
Therefore, before increasing the basic insurance amount, you should consult with
your tax advisor and your Pruco Life representative.
DECREASES IN BASIC INSURANCE AMOUNT
As explained earlier, you may make a withdrawal (see WITHDRAWALS, page 18). On
or after the first Contract anniversary, you also have the option of decreasing
the basic insurance amount of your Contract without withdrawing any cash
surrender value. Contract owners who conclude that, because of changed
circumstances, the amount of insurance is greater than needed will thus be able
to decrease their amount of insurance protection, and the monthly deductions for
the cost of insurance. The basic insurance amount after the decrease must be at
least equal to the minimum basic insurance amount shown under CONTRACT
LIMITATIONS in the data pages of your Contract. If the basic insurance amount is
decreased to an amount less than the basic insurance amount at issue, a
surrender charge may be deducted. No administrative processing charge is
currently being made in connection with a decrease in basic insurance amount,
but we reserve the right to make such a charge in an amount of up to $25. See
CHARGES AND EXPENSES, page 13. If we ask you to, you must send us your Contract
to be endorsed. The Contract will be amended to show the new basic insurance
amount, charges, values in the appropriate tables and the effective date of the
decrease.
We may decline a reduction if we determine it would cause the Contract to fail
to qualify as "life insurance" for purposes of Section 7702 of the Internal
Revenue Code. A decrease will not take effect if the insured is not living on
the effective date.
19
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It is important to note, however, that if the basic insurance amount is
decreased, there is a possibility that the Contract might be classified as a
Modified Endowment Contract. See TAX TREATMENT OF CONTRACT BENEFITS, page 24.
Before requesting any decrease in basic insurance amount, you should consult
with your tax advisor and your Pruco Life representative.
WHEN PROCEEDS ARE PAID
Pruco Life will generally pay any death benefit, cash surrender value, loan
proceeds or withdrawal within 7 days after receipt at a Home Office of all the
documents required for such a payment. Other than the death benefit, which is
determined as of the date of death, the amount will be determined as of the end
of the valuation period in which the necessary documents are received at a Home
Office. However, Pruco Life may delay payment of proceeds from the subaccount[s]
and the variable portion of the death benefit due under the Contract if the
disposal or valuation of the Account's assets is not reasonably practicable
because the New York Stock Exchange is closed for other than a regular holiday
or weekend, trading is restricted by the SEC or the SEC declares that an
emergency exists.
With respect to the amount of any cash surrender value allocated to the
fixed-rate option, Pruco Life expects to pay the cash surrender value promptly
upon request. However, Pruco Life has the right to delay payment of such cash
surrender value for up to six months (or a shorter period if required by
applicable law). Pruco Life will pay interest of at least 3% a year if it delays
such a payment for more than 30 days (or a shorter period if required by
applicable law).
LIVING NEEDS BENEFIT
You may elect to add the LIVING NEEDS BENEFIT(SM) to your Contract at issue. The
benefit may vary by state. There is no charge for adding the benefit to the
Contract. However, an administrative charge (not to exceed $150) will be made at
the time the LIVING NEEDS BENEFIT is paid.
Subject to state regulatory approval, the LIVING NEEDS BENEFIT allows you to
elect to receive an accelerated payment of all or part of the Contract's death
benefit, adjusted to reflect current value, at a time when certain special needs
exist. The adjusted death benefit will always be less than the death benefit,
but will generally be greater than the Contract's cash surrender value. One or
both of the following options may be available. A Pruco Life representative
should be consulted as to whether additional options may be available.
Terminal Illness Option. This option is available if the insured is diagnosed as
terminally ill with a life expectancy of six months or less. When satisfactory
evidence is provided, Pruco Life will provide an accelerated payment of the
portion of the death benefit selected by you as a LIVING NEEDS BENEFIT. You may
(1) elect to receive the benefit in a single sum or (2) receive equal monthly
payments for six months. If the insured dies before all the payments have been
made, the present value of the remaining payments will be paid to the
beneficiary designated in the LIVING NEEDS BENEFIT claim form in a single sum.
Nursing Home Option. This option is available after the insured has been
confined to an eligible nursing home for six months or more. When satisfactory
evidence is provided, including certification by a licensed physician, that the
insured is expected to remain in the nursing home until death, Pruco Life will
provide an accelerated payment of the portion of the death benefit selected by
the Contract owner as a LIVING NEEDS BENEFIT. You may (1) elect to receive the
benefit in a single sum or (2) receive equal monthly payments for a specified
number of years (not more than 10 nor less than 2), depending upon the age of
the insured. If the insured dies before all of the payments have been made, the
present value of the remaining payments will be paid to the beneficiary
designated in the LIVING NEEDS BENEFIT claim form in a single sum.
Subject to state approval, all or part of the Contract's death benefit may be
accelerated under the LIVING NEEDS BENEFIT. If the benefit is only partially
accelerated, a death benefit of at least $25,000 must remain under the Contract.
Pruco Life reserves the right to determine the minimum amount that may be
accelerated.
No benefit will be payable if you are required to elect it in order to meet the
claims of creditors or to obtain a government benefit. Pruco Life can furnish
details about the amount of LIVING NEEDS BENEFIT that is available to an
eligible Contract owner under a particular Contract, and the effect on the
Contract if less than the entire death benefit is accelerated.
You should consider whether adding this settlement option is appropriate in your
given situation. Adding the LIVING NEEDS BENEFIT to the Contract has no adverse
consequences; however, electing to use it could. With the exception of certain
business-related policies, the recently enacted Health Insurance Portability and
20
<PAGE>
Accountability Act of 1996 excludes from income the LIVING NEEDS BENEFIT if the
insured is terminally ill or chronically ill as defined in the tax law (although
the exclusion in the latter case may be limited). You should consult a qualified
tax advisor before electing to receive this benefit. Receipt of a LIVING NEEDS
BENEFIT payment may also affect your eligibility for certain government benefits
or entitlements.
ILLUSTRATIONS OF CASH SURRENDER VALUES, DEATH BENEFITS, AND ACCUMULATED
PREMIUMS
The four tables that follow show how the death benefit and cash surrender values
change with the investment experience of the Account. They are "hypothetical"
because they are based, in part, upon several assumptions, each of which is
described below. All four tables assume that a Contract with a basic insurance
amount of $250,000 has been bought by a 35 year old male, non-smoker, with no
extra risks or substandard ratings, and no extra benefit riders added to the
Contract. It is assumed that the target premium amount (see PREMIUMS, page 9) is
paid on each Contract anniversary and that no loans are taken. The first table
(page T1) assumes that a Type A (fixed) Contract has been purchased and the
second table (page T2) assumes that a Type B (variable) Contract has been
purchased. Both assume that the current charges will continue for the indefinite
future. The third and fourth tables (pages T3 and T4) are based upon the same
assumptions except that it is assumed that the maximum contractual charges have
been made from the beginning. See CHARGES AND EXPENSES, page 13.
Another assumption is that the Contract Fund has been invested in equal amounts
in each of the 15 portfolios of the Funds and no portion of the Contract Fund
has been allocated to the fixed-rate option. Finally, there are four
assumptions, shown separately, about the average investment performance of the
portfolios. The first is that there will be a uniform 0% gross rate of return,
that is, that the average value of the Contract Fund will uniformly be adversely
affected by very unfavorable investment performance. The other three assumptions
are that investment performance will be at a uniform gross annual rate of 4%, 8%
and 12%. These, of course, are unrealistic assumptions since actual returns will
fluctuate from year to year. Nevertheless, these assumptions help show how the
Contract values will change with investment experience.
The first column in the following tables shows the Contract year. The second
column, to provide context, shows what the aggregate amount would be if the
premiums had been invested in a savings account paying 4% compounded interest.
Of course, if that were done, there would be no life insurance protection. The
next four columns show the death benefit payable in each of the years shown for
the four different assumed investment returns. Note that a gross return (as well
as the net return) is shown at the top of each column. The gross return
represents the combined effect of income and capital appreciation of the
portfolios before any reduction is made for investment advisory fees or other
Fund expenses. The net return reflects average total annual expenses of the 15
portfolios of 0.68%, and the daily deduction from the Contract Fund of 0.6% per
year for the tables based on current charges and 0.9% per year for the tables
based on maximum charges. Thus, assuming current charges, gross returns of 0%,
4%, 8% and 12% are the equivalent of net returns of -1.28%, 2.72%, 6.72% and
10.72% respectively. Assuming maximum charges, gross returns of 0%, 4%, 8% and
12% are the equivalent of net returns of -1.58%, 2.42%, 6.42% and 10.42%
respectively. The death benefits and cash surrender values shown reflect the
deduction of all expenses and charges both from the Funds and under the
Contract.
Note that under the Type B (variable) Contract the death benefit changes to
reflect investment returns, while under the Type A (fixed) Contract the death
benefit increases only if the Contract Fund becomes sufficiently large that an
increase in the death benefit is necessary in order to ensure that the Contract
will satisfy the Internal Revenue Code's definition of life insurance. See TYPE
OF DEATH BENEFIT, page 8.
Following these illustrations are two pages (pages T5 and T6) showing internal
rates of return (commonly referred to as IRRs) associated with the cash values
and death benefits shown on the preceding four pages. IRRs are often employed by
insurance companies to provide some indication of the rate of return that may be
thought of as earned upon your "investment" in the Contract (the aggregate
premiums paid) if the Contract were surrendered or if the insured was to die.
The IRR on the death benefit is equivalent to an interest rate (without
considering taxes) at which an amount equal to the premiums illustrated on the
preceding pages could have been invested to arrive at the death benefit of the
Contract. The IRR on the cash surrender value is equivalent to an interest rate
(without considering taxes) at which an amount equal to the illustrated premiums
could have been invested to arrive at the cash surrender value of the Contract.
The IRRs on page T5 are based on the Contract values shown on pages T1 and T2.
The IRRs on page T6 are based on the Contract values shown on pages T3 and T4.
21
<PAGE>
If you are considering the purchase of a variable life insurance contract from
another insurance company, you should not rely upon these tables for comparison
purposes. A comparison between two tables, each showing values for a 35 year old
man, may be useful for a 35 year old man but would be inaccurate if made for
insureds of other ages or sex. Your Pruco Life representative can provide you
with a hypothetical illustration for your own age, sex, and rating class. You
can obtain an illustration using premium amounts and payment patterns that you
wish to follow. You may use assumed gross returns different than those shown in
the tables, although currently they may not be higher than 12%.
22
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------------- -----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- -----------------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET) (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,000 $250,000 $250,000 $ 250,000 $ 102 $ 161 $ 220 $ 279
2 $ 4,259 $250,000 $250,000 $250,000 $ 250,000 $ 1,447 $ 1,616 $ 1,790 $ 1,970
3 $ 6,517 $250,000 $250,000 $250,000 $ 250,000 $ 2,769 $ 3,106 $ 3,461 $ 3,837
4 $ 8,866 $250,000 $250,000 $250,000 $ 250,000 $ 4,066 $ 4,628 $ 5,237 $ 5,897
5 $ 11,308 $250,000 $250,000 $250,000 $ 250,000 $ 5,337 $ 6,182 $ 7,123 $ 8,169
6 $ 13,848 $250,000 $250,000 $250,000 $ 250,000 $ 6,581 $ 7,768 $ 9,126 $ 10,675
7 $ 16,490 $250,000 $250,000 $250,000 $ 250,000 $ 8,050 $ 9,639 $ 11,505 $ 13,693
8 $ 19,237 $250,000 $250,000 $250,000 $ 250,000 $ 9,487 $11,537 $ 14,011 $ 16,992
9 $ 22,095 $250,000 $250,000 $250,000 $ 250,000 $10,887 $13,459 $ 16,649 $ 20,599
10 $ 25,066 $250,000 $250,000 $250,000 $ 250,000 $12,248 $15,403 $ 19,425 $ 24,546
15 $ 41,805 $250,000 $250,000 $250,000 $ 250,000 $17,087 $24,077 $ 34,343 $ 49,446
20 $ 62,171 $250,000 $250,000 $250,000 $ 250,000 $21,231 $33,628 $ 54,724 $ 90,848
25 $ 86,948 $250,000 $250,000 $250,000 $ 320,832 $24,170 $43,714 $ 82,437 $ 159,618
30 $117,094 $250,000 $250,000 $250,000 $ 475,354 $23,920 $52,459 $119,064 $ 270,088
35 $153,771 $250,000 $250,000 $265,106 $ 700,905 $19,198 $58,625 $168,857 $ 446,436
40 $198,394 $250,000 $250,000 $330,239 $1,019,644 $ 4,874 $57,547 $234,212 $ 723,151
45 $252,685 $ 0(2) $250,000 $412,535 $1,496,621 $ 0(2) $41,162 $317,334 $1,151,247
50 $318,738 $ 0 $ 0(2) $514,658 $2,204,137 $ 0 $ 0(2) $421,851 $1,806,669
55 $399,102 $ 0 $ 0 $638,800 $3,241,357 $ 0 $ 0 $550,690 $2,794,273
60 $496,877 $ 0 $ 0 $787,002 $4,744,583 $ 0 $ 0 $709,011 $4,274,399
65 $615,835 $ 0 $ 0 $975,989 $7,006,900 $ 0 $ 0 $929,513 $6,673,238
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0%, THE CONTRACT WOULD GO INTO DEFAULT IN YEAR
42.
BASED ON A GROSS RETURN OF 4%, THE CONTRACT WOULD GO INTO DEFAULT IN
YEAR 50.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T1
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- ----------------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET) (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $251,122 $251,181 $251,239 $ 251,298 $ 100 $ 159 $ 217 $ 276
2 $ 4,259 $252,463 $252,632 $252,806 $ 252,985 $ 1,441 $ 1,610 $ 1,784 $ 1,963
3 $ 6,517 $253,779 $254,115 $254,469 $ 254,843 $ 2,757 $ 3,093 $ 3,447 $ 3,821
4 $ 8,866 $255,068 $255,628 $256,234 $ 256,891 $ 4,046 $ 4,606 $ 5,212 $ 5,869
5 $ 11,308 $256,329 $257,169 $258,105 $ 259,145 $ 5,307 $ 6,148 $ 7,083 $ 8,123
6 $ 13,848 $257,561 $258,741 $260,089 $ 261,628 $ 6,539 $ 7,719 $ 9,067 $ 10,606
7 $ 16,490 $258,760 $260,337 $262,188 $ 264,358 $ 7,994 $ 9,570 $ 11,421 $ 13,591
8 $ 19,237 $259,924 $261,956 $264,407 $ 267,360 $ 9,413 $11,445 $ 13,896 $ 16,849
9 $ 22,095 $261,049 $263,594 $266,750 $ 270,657 $10,793 $13,339 $ 16,495 $ 20,402
10 $ 25,066 $262,131 $265,249 $269,222 $ 274,279 $12,131 $15,249 $ 19,222 $ 24,279
15 $ 41,805 $266,793 $273,635 $283,675 $ 298,435 $16,793 $23,635 $ 33,675 $ 48,435
20 $ 62,171 $270,681 $282,677 $303,062 $ 337,930 $20,681 $32,677 $ 53,062 $ 87,930
25 $ 86,948 $273,222 $291,837 $328,638 $ 402,301 $23,222 $41,837 $ 78,638 $ 152,301
30 $117,094 $272,234 $298,605 $359,970 $ 504,942 $22,234 $48,605 $109,970 $ 254,942
35 $153,771 $266,452 $301,029 $397,532 $ 669,397 $16,452 $51,029 $147,532 $ 419,397
40 $198,394 $251,076 $292,895 $437,607 $ 957,984 $ 1,076 $42,895 $187,607 $ 679,421
45 $252,685 $ 0(2) $265,503 $473,274 $1,407,022 $ 0(2) $15,503 $223,274 $1,082,324
50 $318,738 $ 0 $ 0(2) $492,060 $2,073,013 $ 0 $ 0(2) $242,060 $1,699,191
55 $399,102 $ 0 $ 0 $468,236 $3,049,311 $ 0 $ 0 $218,236 $2,628,716
60 $496,877 $ 0 $ 0 $360,096 $4,464,214 $ 0 $ 0 $110,096 $4,021,814
65 $615,835 $ 0 $ 0 $ 0(2) $6,593,556 $ 0 $ 0 $ 0(2) $6,279,577
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0%, THE CONTRACT WOULD GO INTO DEFAULT IN
YEAR 41.
BASED ON A GROSS RETURN OF 4%, THE CONTRACT WOULD GO INTO DEFAULT IN
YEAR 47.
BASED ON A GROSS RETURN OF 8%, THE CONTRACT WOULD GO INTO DEFAULT IN
YEAR 63.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T2
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE A (FIXED) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------------- -----------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- -----------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET) (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,000 $250,000 $250,000 $ 250,000 $ 0 $ 0 $ 53 $ 107
2 $ 4,259 $250,000 $250,000 $250,000 $ 250,000 $ 1,054 $ 1,206 $ 1,362 $ 1,523
3 $ 6,517 $250,000 $250,000 $250,000 $ 250,000 $ 2,119 $ 2,415 $ 2,728 $ 3,059
4 $ 8,866 $250,000 $250,000 $250,000 $ 250,000 $ 3,137 $ 3,623 $ 4,151 $ 4,724
5 $ 11,308 $250,000 $250,000 $250,000 $ 250,000 $ 4,108 $ 4,828 $ 5,633 $ 6,530
6 $ 13,848 $250,000 $250,000 $250,000 $ 250,000 $ 5,024 $ 6,024 $ 7,172 $ 8,487
7 $ 16,490 $250,000 $250,000 $250,000 $ 250,000 $ 6,141 $ 7,463 $ 9,024 $ 10,862
8 $ 19,237 $250,000 $250,000 $250,000 $ 250,000 $ 7,200 $ 8,888 $10,937 $ 13,417
9 $ 22,095 $250,000 $250,000 $250,000 $ 250,000 $ 8,199 $10,294 $12,909 $ 16,167
10 $ 25,066 $250,000 $250,000 $250,000 $ 250,000 $ 9,134 $11,675 $14,941 $ 19,129
15 $ 41,805 $250,000 $250,000 $250,000 $ 250,000 $11,396 $16,724 $24,682 $ 36,562
20 $ 62,171 $250,000 $250,000 $250,000 $ 250,000 $11,040 $19,885 $35,497 $ 63,006
25 $ 86,948 $250,000 $250,000 $250,000 $ 250,000 $ 6,221 $18,860 $46,040 $ 103,644
30 $117,094 $250,000 $250,000 $250,000 $ 295,568 $ 0 $ 9,523 $53,610 $ 167,936
35 $153,771 $250,000 $250,000 $250,000 $ 413,218 $ 0 $ 0 $51,947 $ 263,196
40 $198,394 $ 0(2) $ 0(2) $250,000 $ 563,045 $ 0(2) $ 0(2) $26,095 $ 399,322
45 $252,685 $ 0 $ 0 $ 0(2) $ 763,998 $ 0 $ 0 $ 0(2) $ 587,691
50 $318,738 $ 0 $ 0 $ 0 $1,030,527 $ 0 $ 0 $ 0 $ 844,694
55 $399,102 $ 0 $ 0 $ 0 $1,379,397 $ 0 $ 0 $ 0 $1,189,136
60 $496,877 $ 0 $ 0 $ 0 $1,847,528 $ 0 $ 0 $ 0 $1,664,440
65 $615,835 $ 0 $ 0 $ 0 $2,379,776 $ 0 $ 0 $ 0 $2,266,453
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT FUND WOULD GO TO ZERO IN YEAR 1
AND IN YEAR 28, BUT BECAUSE THE TARGET PREMIUM IS BEING PAID, THE CONTRACT
IS KEPT INFORCE THROUGH THE LIMITED DEATH BENEFIT GUARANTEE PERIOD OF 35
YEARS. THE CONTRACT WOULD BE IN DEFAULT AT THE BEGINNING OF YEAR 36.
BASED ON A GROSS RETURN OF 4% THE CONTRACT FUND WOULD GO TO ZERO IN YEAR 1
AND IN YEAR 33, BUT BECAUSE THE TARGET PREMIUM IS BEING PAID, THE CONTRACT
IS KEPT INFORCE THROUGH THE LIMITED DEATH BENEFIT GUARANTEE PERIOD OF 35
YEARS. THE CONTRACT WOULD BE IN DEFAULT AT THE BEGINNING OF YEAR 36.
BASED ON A GROSS RETURN OF 8%, THE CONTRACT WOULD GO INTO DEFAULT IN YEAR
43.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T3
<PAGE>
VARIABLE UNIVERSAL LIFE
TYPE B (VARIABLE) DEATH BENEFIT
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<TABLE>
<CAPTION>
DEATH BENEFIT (1) CASH SURRENDER VALUE (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
PREMIUMS ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ACCUMULATED ---------------------------------------------------- ----------------------------------------------------
POLICY AT 4% INTEREST 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR PER YEAR (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET) (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET)
- ------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 2,088 $250,964 $251,018 $251,072 $251,127 $ 0 $ 0 $ 50 $ 105
2 $ 4,259 $252,070 $252,221 $252,377 $252,537 $ 1,048 $ 1,199 $ 1,355 $ 1,515
3 $ 6,517 $253,128 $253,422 $253,734 $254,063 $ 2,106 $ 2,400 $ 2,712 $ 3,041
4 $ 8,866 $254,137 $254,620 $255,144 $255,714 $ 3,115 $ 3,598 $ 4,122 $ 4,692
5 $ 11,308 $255,096 $255,811 $256,610 $257,500 $ 4,074 $ 4,789 $ 5,588 $ 6,478
6 $ 13,848 $255,998 $256,988 $258,125 $259,427 $ 4,976 $ 5,966 $ 7,103 $ 8,405
7 $ 16,490 $256,841 $258,148 $259,691 $261,508 $ 6,074 $ 7,382 $ 8,925 $ 10,741
8 $ 19,237 $257,623 $259,289 $261,309 $263,755 $ 7,112 $ 8,778 $10,798 $ 13,244
9 $ 22,095 $258,342 $260,403 $262,977 $266,182 $ 8,086 $10,148 $12,721 $ 15,926
10 $ 25,066 $258,992 $261,487 $264,692 $268,801 $ 8,992 $11,487 $14,692 $ 18,801
15 $ 41,805 $261,042 $266,184 $273,856 $285,301 $11,042 $16,184 $23,856 $ 35,301
20 $ 62,171 $260,343 $268,635 $283,252 $308,979 $10,343 $18,635 $33,252 $ 58,979
25 $ 86,948 $255,102 $266,352 $290,540 $341,777 $ 5,102 $16,352 $40,540 $ 91,777
30 $117,094 $250,000 $255,315 $291,215 $385,469 $ 0 $ 5,315 $41,215 $135,469
35 $153,771 $ 0(2) $ 0(2) $276,322 $439,876 $ 0(2) $ 0(2) $26,322 $189,876
40 $198,394 $ 0 $ 0 $ 0(2) $500,602 $ 0 $ 0 $ 0(2) $250,602
45 $252,685 $ 0 $ 0 $ 0 $552,979 $ 0 $ 0 $ 0 $302,979
50 $318,738 $ 0 $ 0 $ 0 $569,968 $ 0 $ 0 $ 0 $319,968
55 $399,102 $ 0 $ 0 $ 0 $494,777 $ 0 $ 0 $ 0 $244,777
60 $ 0 $ 0 $ 0 $ 0 $ 0(2) $ 0 $ 0 $ 0 $ 0(2)
65 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT FUND WOULD GO TO ZERO IN YEAR 1
AND IN YEAR 28, BUT BECAUSE THE TARGET PREMIUM IS BEING PAID, THE CONTRACT
IS KEPT INFORCE THROUGH THE LIMITED DEATH BENEFIT GUARANTEE PERIOD OF 33
YEARS. THE CONTRACT WOULD BE IN DEFAULT AT THE BEGINNING OF YEAR 34.
BASED ON A GROSS RETURN OF 4% THE CONTRACT FUND WOULD GO TO ZERO IN YEAR 1
AND IN YEAR 32, BUT BECAUSE THE TARGET PREMIUM IS BEING PAID, THE CONTRACT
IS KEPT INFORCE THROUGH THE LIMITED DEATH BENEFIT GUARANTEE PERIOD OF 33
YEARS. THE CONTRACT WOULD BE IN DEFAULT AT THE BEGINNING OF YEAR 34.
BASED ON A GROSS RETURN OF 8%, THE CONTRACT WOULD GO INTO DEFAULT IN YEAR
39.
BASED ON A GROSS RETURN OF 12%, THE CONTRACT WOULD GO INTO DEFAULT IN YEAR
60.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T4
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING CURRENT CONTRACTUAL CHARGES
FIXED INSURANCE AMOUNT
<CAPTION>
INTERNAL RATES OF RETURN ON DEATH (1) INTERNAL RATES OF RETURN ON SURRENDER (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ---------------------------------------------------- ----------------------------------------------------
POLICY 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET) (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -20.36% -15.74% -11.22% -6.79%
10 44.34% 44.34% 44.34% 44.34% -9.23% -4.88% -0.60% 3.63%
15 23.96% 23.96% 23.96% 23.96% -7.49% -2.85% 1.63% 5.98%
20 15.44% 15.44% 15.44% 15.44% -6.56% -1.72% 2.86% 7.26%
25 10.88% 10.88% 10.88% 12.42% -6.23% -1.08% 3.63% 8.05%
30 8.09% 8.09% 8.09% 11.34% -6.90% -0.91% 4.09% 8.49%
35 6.24% 6.24% 6.50% 10.66% -9.17% -1.03% 4.44% 8.76%
40 4.93% 4.93% 6.01% 10.15% -29.17% -1.71% 4.67% 8.92%
45 (2) 3.96% 5.69% 9.82% (2) -3.91% 4.80% 9.00%
50 (2) 5.46% 9.58% (2) 4.86% 9.04%
55 5.28% 9.40% 4.88% 9.03%
60 5.13% 9.24% 4.88% 9.01%
65 5.03% 9.13% 4.92% 9.03%
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 42.
BASED ON A GROSS RETURN OF 4% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 50.
<TABLE>
VARIABLE INSURANCE AMOUNT
<CAPTION>
INTERNAL RATES OF RETURN ON DEATH (1) INTERNAL RATES OF RETURN ON SURRENDER (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ---------------------------------------------------- ----------------------------------------------------
POLICY 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET) (-1.28% NET) (2.72% NET) (6.72% NET) (10.72% NET)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 137.03% 137.21% 137.40% 137.63% -20.53% -15.92% -11.40% -6.97%
10 45.20% 45.41% 45.68% 46.02% -9.41% -5.07% -0.79% 3.43%
15 24.66% 24.94% 25.33% 25.88% -7.73% -3.09% 1.38% 5.74%
20 16.06% 16.40% 16.94% 17.79% -6.86% -2.01% 2.59% 6.99%
25 11.43% 11.83% 12.56% 13.79% -6.61% -1.43% 3.30% 7.74%
30 8.53% 9.01% 9.95% 11.64% -7.56% -1.42% 3.64% 8.19%
35 6.52% 7.06% 8.27% 10.47% -10.69% -1.86% 3.80% 8.50%
40 4.94% 5.55% 7.08% 9.93% -65.10% -3.38% 3.77% 8.69%
45 (2) 4.17% 6.15% 9.63% (2) -11.42% 3.56% 8.81%
50 (2) 5.33% 9.41% (2) 3.12% 8.87%
55 4.44% 9.25% 2.24% 8.88%
60 3.17% 9.11% -0.30% 8.88%
65 (2) 9.01% (2) 8.91%
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 41.
BASED ON A GROSS RETURN OF 4% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 47.
BASED ON A GROSS RETURN OF 8% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 63.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T5
<PAGE>
<TABLE>
VARIABLE UNIVERSAL LIFE
MALE NON-SMOKER AGE 35
$250,000 BASIC INSURANCE AMOUNT
$2,007.50 ANNUAL PREMIUM PAYMENT
USING MAXIMUM CONTRACTUAL CHARGES
<CAPTION>
FIXED INSURANCE AMOUNT
INTERNAL RATES OF RETURN ON DEATH (1) INTERNAL RATES OF RETURN ON SURRENDER (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ---------------------------------------------------- ----------------------------------------------------
POLICY 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET) (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 135.66% 135.66% 135.66% 135.66% -28.41% -23.46% -18.67% -14.00%
10 44.34% 44.34% 44.34% 44.34% -15.01% -10.15% -5.45% -0.88%
15 23.96% 23.96% 23.96% 23.96% -13.51% -7.79% -2.53% 2.39%
20 15.44% 15.44% 15.44% 15.44% -14.86% -7.31% -1.19% 4.12%
25 10.88% 10.88% 10.88% 10.88% -24.38% -8.72% -0.67% 5.20%
30 8.09% 8.09% 8.95% -17.36% -0.76% 5.99%
35 6.24% 8.43% -1.75% 6.47%
40 (2) (2) 4.93% 8.01% (2) (2) -6.73% 6.73%
45 (2) 7.71% (2) 6.86%
50 7.47% 6.91%
55 7.28% 6.90%
60 7.13% 6.89%
65 6.93% 6.83%
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 36.
BASED ON A GROSS RETURN OF 4% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 36.
BASED ON A GROSS RETURN OF 8% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 43.
</TABLE>
VARIABLE INSURANCE AMOUNT
<TABLE>
<CAPTION>
INTERNAL RATES OF RETURN ON DEATH (1) INTERNAL RATES OF RETURN ON SURRENDER (1)
---------------------------------------------------- ----------------------------------------------------
ASSUMING HYPOTHETICAL GROSS (AND NET) ASSUMING HYPOTHETICAL GROSS (AND NET)
ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
END OF ---------------------------------------------------- ----------------------------------------------------
POLICY 0% GROSS 4% GROSS 8% GROSS 12% GROSS 0% GROSS 4% GROSS 8% GROSS 12% GROSS
YEAR (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET) (-1.58% NET) (2.42% NET) (6.42% NET) (10.42% NET)
- ------ ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 136.76% 136.92% 137.09% 137.28% -28.66% -23.72% -18.92% -14.26%
10 44.98% 45.15% 45.37% 45.65% -15.32% -10.47% -5.77% -1.20%
15 24.43% 24.64% 24.94% 25.39% -14.01% -8.26% -2.97% 1.96%
20 15.75% 16.00% 16.41% 17.09% -15.82% -8.06% -1.83% 3.53%
25 11.00% 11.27% 11.81% 12.80% -28.23% -10.28% -1.69% 4.37%
30 8.20% 8.88% 10.30% -27.42% -2.58% 4.82%
35 (2) (2) 6.68% 8.70% (2) (2) -6.44% 4.99%
40 (2) 7.58% (2) 4.94%
45 6.66% 4.64%
50 5.76% 4.01%
55 4.59% 2.59%
60 (2) (2)
65
</TABLE>
(1) ASSUMES NO CONTRACT LOAN HAS BEEN MADE.
(2) BASED ON A GROSS RETURN OF 0% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 34.
BASED ON A GROSS RETURN OF 4% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 34.
BASED ON A GROSS RETURN OF 8% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 39.
BASED ON A GROSS RETURN OF 12% THE CONTRACT WOULD GO INTO DEFAULT IN POLICY
YEAR 60.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING INTEREST RATES, AND RATE OF
INFLATION. THE DEATH BENEFIT AND CASH SURRENDER VALUE FOR A CONTRACT WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGE 0%, 4%, 8%, AND
12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR
INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY PRUCO LIFE OR THE
FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
T6
<PAGE>
CONTRACT LOANS
You may borrow from Pruco Life an amount up to the current loan value of your
Contract less any existing Contract debt using the Contract as the only security
for the loan. The loan value at any time is equal to the sum of (1) 90% of the
portion of the cash value attributable to the variable investment options, and
(2) the balance of the cash value. The cash value is equal to the Contract Fund
less any surrender charge. A Contract in default has no loan value. The minimum
loan amount you may borrow is $200.
Interest charged on a loan accrues daily. Interest is due on each Contract
anniversary or when the loan is paid back, whichever comes first. If interest is
not paid when due, it becomes part of the loan and we will charge interest on
it, too. Except in the case of preferred loans, we charge interest at an
effective annual rate of 5%.
A portion of any amount you borrow on or after the tenth Contract anniversary
may be considered a preferred loan. The maximum preferred loan amount is the
total amount you may borrow minus the total net premiums paid (net premiums
equal premiums paid less total withdrawals, if any). If the net premium amount
is less than zero, we will, for purposes of this calculation, consider it to be
zero. Only new loans borrowed after the 10th Contract anniversary may be
considered preferred loans; standard loans will not automatically be converted
into preferred loans. Preferred loans are charged interest at an effective
annual rate of 4.5%.
The term "Contract debt" means the amount of all outstanding loans plus any
interest accrued but not yet due. If at any time the Contract debt equals or
exceeds the Contract Fund less any applicable surrender charges, the Contract
will go into default. See LAPSE AND REINSTATEMENT, page 26. If the Contract debt
equals or exceeds the Contract Fund less any applicable surrender charges and
you fail to keep the Contract in force, the amount of unpaid Contract debt will
be treated as a distribution which may be taxable. See TAX TREATMENT OF CONTRACT
BENEFITS, page 24.
When a loan is made, an amount equal to the loan proceeds will be transferred
out of the Account and/or the fixed-rate option, as applicable. Unless you ask
us to take the loan amount from specific investment options and we agree, the
reduction will be made in the same proportions as the value in each subaccount
and the fixed-rate option bears to the total value of the Contract. While a loan
is outstanding, the amount that was so transferred will continue to be treated
as part of the Contract Fund. It will be credited with an effective annual rate
of return of 4%. On each Monthly date, we will increase the portion of the
Contract Fund in the investment options by interest credits accrued on the loan
since the last Monthly date. The net cost of a standard loan is 1% and the net
cost of a preferred loan is 1/2%.
As long as Contract debt does not equal or exceed the Contract Fund less any
applicable surrender charges, a loan will not affect the Death Benefit
Guarantee. Loans from Modified Endowment Contracts may be treated for tax
purposes as distributions of income. See TAX TREATMENT OF CONTRACT BENEFITS,
page 24.
Any Contract debt will directly reduce a Contract's cash surrender value and
will be subtracted from the death benefit to determine the amount payable. In
addition, even if the loan is fully repaid, it may have an effect on future
death benefits because the investment results of the selected investment options
will apply only to the amount remaining invested under those options. The longer
the loan is outstanding, the greater the effect is likely to be. The effect
could be favorable or unfavorable. If investment results are greater than the
rate being credited on the amount of the loan while the loan is outstanding,
values under the Contract will not increase as rapidly as they would have if no
loan had been made. If investment results are below that rate, Contract values
will be higher than they would have been had no loan been made.
When you repay all or part of a loan, we will increase the portion of the
Contract Fund in the investment options by the amount of the loan you repay
using the investment allocation for future premium payments on file as of the
loan payment date, plus interest credits accrued on the loan since the last
transaction date. We will not increase the portion of the Contract Fund
allocated to the investment options by loan interest that you pay before we make
it part of the loan. We reserve the right to change the manner in which we
allocate loan repayments.
SALE OF THE CONTRACT AND SALES COMMISSIONS
Pruco Securities Corporation ("Prusec"), an indirect wholly-owned subsidiary of
Prudential, acts as the principal underwriter of the Contract. Prusec, organized
in 1971 under New Jersey law, is registered as a broker and dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers, Inc. Prusec's principal business address is 213 Washington
Street, Newark, New Jersey 07102-2992. The Contract is sold by registered
representatives of Prusec who are also authorized by state insurance departments
to do so. The Contract may also be sold through other broker-dealers authorized
by Prusec and
23
<PAGE>
applicable law to do so. Registered representatives of such other broker-dealers
may be paid on a different basis than described below.
Generally, representatives will receive a commission of no more than 50% of the
premiums received in the first year on premiums up to the target premium (see
PREMIUMS, page 9), no more than 5% of premiums received in years two through 10
on premiums up to the target premium, and no more than 3% on premiums received
in the first 10 years in excess of the target premium or received after 10
years. If the basic insurance amount is increased, representatives will
generally receive a commission of no more than 25% of the premiums received up
to the target premium for the increase received in the first year, no more than
5% of the premiums received up to the target premium for years two through 10,
and no more than 3% on other premiums received for the increase. Moreover, trail
commissions of up to 0.025% of the Contract Fund as of the end of each calendar
quarter may be paid. Representatives with less than 4 years of service may
receive compensation on a different basis. Representatives who meet certain
productivity or persistency standards may be eligible for additional
compensation.
TAX TREATMENT OF CONTRACT BENEFITS
Each prospective purchaser is urged to consult a qualified tax advisor. The
following discussion is not intended as tax advice, and it is not a complete
statement of what the effect of federal income taxes will be under all
circumstances. Rather, it provides information about how Pruco Life believes the
tax laws apply in the most commonly occurring circumstances. There is no
guarantee, however, that the current federal income tax laws and regulations or
interpretations will not change.
TREATMENT AS LIFE INSURANCE. The Contract will be treated as "life insurance,"
as long as it satisfies certain definitional tests set forth in Sections 7702 of
the Internal Revenue Code (the "Code") and as long as the underlying investments
for the Contract satisfy diversification requirements under Section 817(h) of
the Code. (For further detail on diversification requirements, see the
corresponding sections on Dividends, Distributions, and Taxes in the attached
prospectuses for the Funds.)
Pruco Life believes that it has taken adequate steps to cause the Contract to be
treated as life insurance for tax purposes. This means that: (1) except as noted
below, the Contract owner should not be taxed on any part of the Contract Fund,
including additions attributable to interest, dividends or appreciation until
amounts are distributed under the Contract; and (2) the death benefit should be
excludible from the gross income of the beneficiary under Section 101(a) of the
Code.
However, Section 7702 of the Code which defines life insurance for tax purposes
gives the Secretary of the Treasury authority to prescribe regulations to carry
out the purposes of the Section. In this regard, proposed regulations governing
mortality charges were issued in 1991 and proposed regulations relating to the
definition of life insurance were issued in 1992. None of these proposed
regulations has yet been finalized. Additional regulations under Section 7702
may also be promulgated in the future. Moreover, in connection with the issuance
of temporary regulations under Section 817(h), the Treasury Department announced
that such regulations do not provide guidance concerning the extent to which
Contract owners may direct their investments to particular divisions of a
separate account. Such guidance will be included in regulations or rulings under
Section 817(d) relating to the definition of a variable contract.
Pruco Life intends to comply with final regulations or rulings issued under
Sections 7702 and 817. Therefore, it reserves the right to make such changes as
it deems necessary to assure that the Contract continues to qualify as life
insurance for tax purposes. Any such changes will apply uniformly to affected
Contract owners and will be made only after advance written notice to affected
Contract owners.
PRE-DEATH DISTRIBUTIONS. The taxation of pre-death distributions depends on
whether the Contract is classified as a Modified Endowment Contract. The
following discussion first deals with distributions under Contracts not so
classified, and then with Modified Endowment Contracts.
1. A surrender or lapse of the Contract may have tax consequences. Upon
surrender, the owner will not be taxed on the cash surrender value
except for the amount, if any, that exceeds the gross premiums paid less
the untaxed portion of any prior withdrawals. The amount of any unpaid
Contract debt will, upon surrender or lapse, be added to the cash
surrender value and treated, for this purpose, as if it had been
received. The tax consequences of a surrender may differ if the proceeds
are received under any income payment settlement option.
A withdrawal generally is not taxable unless it exceeds total gross
premiums paid to the date of withdrawal less the untaxed portion of any
prior withdrawals. However, under certain limited
24
<PAGE>
circumstances, in the first 15 Contract years all or a portion of a
withdrawal may be taxable if the Contract Fund exceeds the total
premiums paid less the untaxed portions of any prior withdrawals, even
if total withdrawals do not exceed total premiums paid to date.
Extra premiums for optional benefits and riders generally do not count
in computing gross premiums paid, which in turn determines the extent to
which a withdrawal might be taxed.
Loans received under the Contract will ordinarily be treated as
indebtedness of the owner and will not be considered to be distributions
subject to tax. However, there is some risk the Internal Revenue Service
might assert the preferred loan should be treated as a distribution for
tax purposes because of the relatively low differential between the loan
interest rate and Contract's crediting rate. Were the Internal Revenue
Service to take this position, Pruco Life would take reasonable steps to
avoid this result, including modifying the Contract's loan provisions.
2. Some of the above rules are changed if the Contract is classified as a
Modified Endowment Contract under Section 7702A of the Code. It is
possible for this Contract to be classified as a Modified Endowment
Contract under at least two circumstances: premiums in excess of the
7-pay premiums allowed under Section 7702A are paid or a decrease in the
basic insurance amount is made (or a rider removed). Moreover, the
addition of a rider or the increase in the basic insurance amount after
the Contract date may have an impact on the Contract's status as a
Modified Endowment Contract. Contract owners contemplating any of these
steps, particularly a withdrawal that would reduce the basic insurance
amount, should first consult a qualified tax advisor and their Pruco
Life representative.
If the Contract is classified as a Modified Endowment Contract, then
pre-death distributions, including loans, assignment and pledges are
includible in income to the extent that the Contract Fund prior to
surrender charges exceeds the gross premiums paid for the Contract
increased by the amount of any loans previously includible in income and
reduced by any untaxed amounts previously received other than the amount
of any loans excludible from income. These rules may also apply to
pre-death distributions, including loans, made during the two year
period prior to the Contract becoming a Modified Endowment Contract.
In addition, pre-death distributions from such Contracts (including full
surrenders) will be subject to a penalty of 10% of the amount includible
in income unless the amount is distributed on or after age 59 1/2, on
account of the taxpayer's disability or as a life annuity. It is
presently unclear how the penalty tax provisions apply to Contracts
owned by nonnatural persons such as corporations.
Under certain circumstances, multiple Modified Endowment Contracts
issued during any calendar year will be treated as a single contract for
purposes of applying the above rules.
WITHHOLDING
The taxable portion of any amounts received under the Contract will be subject
to withholding to meet federal income tax obligations, if the Contract owner
fails to elect that no taxes be withheld or in certain other circumstances.
Pruco Life will provide the Contract owner with forms and instructions
concerning the right to elect that no taxes be withheld from the taxable portion
of any payment. All recipients may be subject to penalties under the estimated
tax payment rules if withholding and estimated tax payments are not sufficient.
Contract owners who do not provide a social security number or other taxpayer
identification number will not be permitted to elect out of withholding. Special
withholding rules apply to payments to non-resident aliens.
OTHER TAX CONSIDERATIONS. Transfer of the Contract to a new owner or assignment
of the Contract may have tax consequences depending on the circumstances. In the
case of a transfer of the Contract for a valuable consideration, the death
benefit may be subject to federal income taxes under Section 101(a)(2) of the
Code. In addition, a transfer of the Contract to or the designation of a
beneficiary who is either 37 1/2 years younger than the Contract owner or a
grandchild of the Contract owner may have Generation Skipping Transfer tax
consequences under Section 2601 of the Code.
In certain circumstances, deductions for interest paid or accrued on Contract
debt or on other loans that are incurred or continued to purchase or carry the
Contract may be denied under Sections 163 of the Code as personal interest or
under Section 264 of the Code. Contract owners should consult a tax advisor
regarding the application of these provisions to their circumstances.
Business-owned life insurance is subject to additional rules. Section 264(a)(1)
of the Code generally precludes business Contract owners from deducting premium
payments. Interest on Contract debt on a business-owned
25
<PAGE>
insurance policy is generally not tax-deductible. An exemption permits the
deduction of interest on policy loans on contracts for up to 20 key persons. The
interest deduction for contract debt on such loans is limited to a prescribed
interest rate and a maximum aggregate loan amount of $50,000 per insured key
person. The Code also imposes an indirect tax upon additions to the Contract
Fund or the receipt of death benefits under business- owned life insurance
policies under certain circumstances by way of the corporate alternative minimum
tax.
The individual situation of each Contract owner or beneficiary will determine
the federal estate taxes and the state and local estate, inheritance and other
taxes due if the owner or insured dies.
LAPSE AND REINSTATEMENT
On each Monthly date, we will determine the value of the Contract Fund. If the
Contract Fund less any applicable surrender charges is zero or less, the
Contract is in default unless it remains in force under the Death Benefit
Guarantee. See DEATH BENEFIT GUARANTEE, page 10. If the Contract debt ever grows
to be equal to or more than the Contract Fund less any applicable surrender
charges, the Contract will be in default. Should this happen, Pruco Life will
send you a notice of default setting forth the payment which we estimate will
keep the Contract in force for three months from the date of default. This
payment must be received at a Home Office within the 61-day grace period after
the notice of default is mailed or the Contract will end and have no value. A
Contract that lapses and ends without value with an outstanding Contract loan
may have tax consequences. See TAX TREATMENT OF CONTRACT BENEFITS, page 24.
A Contract that ended in default may be reinstated within 5 years after the date
of default if the following conditions are met: (1) renewed evidence of
insurability is provided on the insured; (2) submission of certain payments
sufficient to bring the Contract up to date plus a premium that we estimate will
cover all charges and deductions for the next three months; and (3) any Contract
debt with interest to date must be restored (if the debt with interest would
exceed the loan value of the reinstated Contract, the excess must be paid to us
before reinstatement) or paid back. The date of reinstatement will be the
Monthly date that coincides with or next follows the date we approve your
request. All required charges will be deducted from your payment and the balance
will be placed into your Contract Fund. If we approve the reinstatement, we will
credit the Contract Fund with an amount equal to the surrender charge applicable
as of the date of reinstatement.
LEGAL CONSIDERATIONS RELATING TO SEX-DISTINCT PREMIUMS AND BENEFITS
The Contract generally employs mortality tables that distinguish between males
and females. Thus, premiums and benefits under Contracts issued on males and
females of the same age will generally differ. However, in those states that
have adopted regulations prohibiting sex-distinct insurance rates, premiums and
cost of insurance charges will be based on male rates whether the insureds are
male or female. In addition, employers and employee organizations considering
purchase of a Contract should consult their legal advisors to determine whether
purchase of a Contract based on sex-distinct actuarial tables is consistent with
Title VII of the Civil Rights Act of 1964 or other applicable law. Pruco Life
may offer the Contract with male mortality rates to such prospective purchasers.
OTHER GENERAL CONTRACT PROVISIONS
ASSIGNMENT. This Contract may not be assigned if such assignment would violate
any federal, state or local law or regulation prohibiting sex distinct rates for
insurance. Generally, the Contract may not be assigned to an employee benefit
plan or program without Pruco Life's consent. Pruco Life assumes no
responsibility for the validity or sufficiency of any assignment, and we will
not be obligated to comply with any assignment unless we received a copy at one
of our Home Offices.
BENEFICIARY. The beneficiary is designated and named in the application by the
Contract owner. Thereafter, you may change the beneficiary, provided it is in
accordance with the terms of the Contract. Should the insured die with no
surviving beneficiary, the insured's estate will become the beneficiary.
INCONTESTABILITY. After the Contract has been in force during the lifetime of
the insured for two years from the Contract date or, with respect to any change
in the Contract that requires Pruco Life's approval and could increase its
liability, after the change has been in effect during the insured's lifetime for
two years from the effective date of the change, assuming enough premium has
been paid to cover the required charges, Pruco Life will not contest its
liability under the Contract in accordance with its terms.
MISSTATEMENT OF AGE OR SEX. If the insured's stated age or sex or both are
incorrect in the Contract, Pruco Life will adjust each benefit and any amount to
be paid, as required by law, to reflect the correct age and sex. Any
26
<PAGE>
such benefit will be based on what the most recent deductions from the Contract
Fund would have provided at the insured's correct age and sex.
SETTLEMENT OPTIONS. The Contract grants to most owners, or to the beneficiary, a
variety of optional ways of receiving Contract proceeds, other than in a lump
sum. Any Pruco Life representative authorized to sell this Contract can explain
these options upon request.
SUICIDE EXCLUSION. Generally, if the insured, whether sane or insane, dies by
suicide within two years from the Contract date, the Contract will end and Pruco
Life will return the premiums paid, less any Contract debt, and less any
withdrawals. Generally, if the insured, whether sane or insane, dies by suicide
after two years from the issue date, but within two years of the effective date
of an increase in the basic insurance amount, we will pay, as to the increase in
amount, no more than the sum of the premiums paid on and after the effective
date of an increase.
RIDERS
Contract owners may be able to obtain extra fixed benefits which may require an
additional premium. These optional insurance benefits will be described in what
is known as a "rider" to the Contract. Charges applicable to the riders will be
deducted from the Contract Fund on each Monthly date.
One rider pays certain premiums into the Contract if the insured is totally
disabled within the meaning of the provision. Others pay an additional amount if
the insured dies within a stated number of years after issue; similar benefits
may be available if the insured's spouse or child should die. The amounts of
these benefits are fully guaranteed at issue; they do not depend on the
performance of the Account, although they will no longer be available if the
Contract should lapse. Certain restrictions may apply; they are clearly
described in the applicable rider.
Any Pruco Life representative authorized to sell the Contract can explain these
extra benefits further. Samples of the provisions are available from Pruco Life
upon written request.
VOTING RIGHTS
As stated above, all of the assets held in the subaccounts of the Account will
be invested in shares of the corresponding portfolios of the Funds. Pruco Life
is the legal owner of those shares and as such has the right to vote on any
matter voted on at shareholders meetings of the Funds. However, Pruco Life will,
as required by law, vote the shares of the Funds at any regular and special
shareholders meetings held in accordance with voting instructions received from
Contract owners. A Fund may not hold annual shareholders meetings when not
required to do so under the laws of the state of its incorporation or the
Investment Company Act of 1940. Fund shares for which no timely instructions
from Contract owners are received, and any shares attributable to general
account investments of Pruco Life will be voted in the same proportion as shares
in the respective portfolios for which instructions are received. Should the
applicable federal securities laws or regulations, or their current
interpretation, change so as to permit Pruco Life to vote shares of the Funds in
its own right, it may elect to do so.
Generally, a Contract owner may give voting instructions on matters that would
result in changes in fundamental policies and any matter requiring a vote of the
shareholders of the Funds. With respect to approval of the investment advisory
agreement or any change in a portfolio's fundamental investment policy, Contract
owners participating in such portfolios will vote separately by portfolio on the
matter, pursuant to the requirements of Rule 18f-2 under the 1940 Act.
The number of Fund shares for which instructions may be given by a Contract
owner is determined by dividing the portion of the value of the Contract derived
from participation in a subaccount, by the value of one share in the
corresponding portfolio of the applicable Fund. The number of votes for which
each Contract owner may give Pruco Life instructions will be determined as of
the record date chosen by the Board of Directors of the applicable Fund. Pruco
Life will furnish Contract owners with proper forms and proxies to enable them
to give these instructions. Pruco Life reserves the right to modify the manner
in which the weight to be given voting instructions is calculated where such a
change is necessary to comply with current federal regulations or
interpretations of those regulations.
Pruco Life may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of a Fund's portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Pruco Life itself may disregard voting
instructions that would require changes in the investment policy or
27
<PAGE>
investment advisor of one or more of a Fund's portfolios, provided that Pruco
Life reasonably disapproves such changes in accordance with applicable federal
regulations. If Pruco Life does disregard voting instructions, it will advise
Contract owners of that action and its reasons for such action in the next
annual or semi-annual report to Contract owners.
SUBSTITUTION OF FUND SHARES
Although Pruco Life believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contract owners because of investment policy
changes, tax law changes, or the unavailability of shares for investment. In
that event, Pruco Life may seek to substitute the shares of another portfolio or
of an entirely different mutual fund. Before this can be done, the approval of
the SEC, and possibly one or more state insurance departments, may be required.
Contract owners will be notified of such substitution.
REPORTS TO CONTRACT OWNERS
Once each year you will be sent a statement that provides certain information
pertinent to your own Contract. This statement will detail values and
transactions made and specific Contract data that apply only to your particular
Contract.
You will also be sent annual and semi-annual reports of the Funds showing the
financial condition of the portfolios and the investments held in each.
STATE REGULATION
Pruco Life is subject to regulation and supervision by the Department of
Insurance of the State of Arizona, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Pruco Life is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Pruco Life is required
to file with Arizona and other jurisdictions a separate statement with respect
to the operations of all its variable contract accounts, in a form promulgated
by the National Association of Insurance Commissioners.
EXPERTS
The financial statements included in this prospectus for year ended December 31,
1996, have been audited by Price Waterhouse LLP, independent accountants, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. The financial statements included in this prospectus for the first
quarter ended March 31, 1997, are unaudited and Price Waterhouse LLP,
independent accountants, are not expressing an opinion on those financial
statements. Price Waterhouse LLP's principal business address is 1177 Avenue of
the Americas, New York, New York 10036.
The financial statements included in this prospectus for years ended December
31, 1995 and December 31, 1994, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP's principal business
address is Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the independent
accountants of Pruco Life. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make reference to
the matter in their reports.
Actuarial matters included in this prospectus have been examined by Ching-Meei
Chang, MAAA, FSA, Actuarial Director of Prudential whose opinion is filed as an
exhibit to the registration statement.
28
<PAGE>
LITIGATION
Several actions have been brought against Pruco Life alleging that Pruco Life
and its agents engaged in improper life insurance sales practices. Prudential
has agreed to indemnify Pruco Life for losses, if any, resulting from such
litigation. No other significant litigation is being brought against Pruco Life
that would have a material effect on its financial position.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Pruco Life's office. The address
and telephone number are set forth on the inside front cover of this prospectus.
FINANCIAL STATEMENTS
The consolidated financial statements of Pruco Life and subsidiaries included
herein should be distinguished from the financial statements of the Account, and
should be considered only as bearing upon the ability of Pruco Life to meet its
obligations under the Contracts.
29
<PAGE>
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life, listed with their principal
occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE
JAMES J. AVERY, Chairman and Director. -- Vice President and Chief Actuary,
Product Development Department of Prudential since 1997; 1995 to 1997:
President of Prudential Select; 1993 to 1995: Chief Operating Officer of
Prudential Select; Prior to 1993: Chief Financial Officer of Prudential Select.
WILLIAM M. BETHKE, Director. -- President, Prudential Capital Markets Group
since 1992.
IRA J. KLEINMAN, Director. -- Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group; 1993 to 1995:
President, Prudential Select; Prior to 1993: Senior Vice President of
Prudential.
MENDEL A. MELZER, Director. -- Chief Investment Officer, Mutual Funds and
Annuities, Prudential Investments since 1996; 1995 to 1996: Chief Financial
Officer of the Money Management Group of Prudential; 1993 to 1995: Senior Vice
President and Chief Financial Officer of Prudential Preferred Financial
Services; Prior to 1993: Managing Director, Prudential Investment Corporation.
ESTHER H. MILNES, President and Director. -- Vice President and Actuary,
Prudential Individual Insurance Group since 1996; 1993 to 1996: Senior Vice
President and Chief Actuary, Prudential Insurance and Financial Services; Prior
to 1993: Vice President and Associate Actuary of Prudential.
I. EDWARD PRICE, Vice Chairman and Director. -- Senior Vice President and
Actuary, Prudential Individual Insurance Group since 1995; 1994 to 1995: Chief
Executive Officer, Prudential International Insurance; 1993 to 1994: President,
Prudential International Insurance; Prior to 1993: Senior Vice President and
Company Actuary of Prudential.
KIYOFUMI SAKAGUCHI, Director. -- President, Prudential International Insurance
Group since 1995; 1994 to 1995: Chairman and Chief Executive Officer, The
Prudential Life Insurance Co., Ltd.; Prior to 1994: President and Chief
Executive Officer, Asia Pacific Region-Prudential International Insurance, and
President, The Prudential Life Insurance Co., Ltd.
OFFICERS WHO ARE NOT DIRECTORS
SUSAN L. BLOUNT, Secretary. -- Vice President and Secretary of Prudential since
1995; Prior to 1995: Assistant General Counsel for Prudential Residential
Services Company.
C. EDWARD CHAPLIN, Treasurer. -- Vice President and Treasurer of Prudential
since 1995; 1993 to 1995: Managing Director and Assistant Treasurer of
Prudential; 1992 to 1993: Vice President and Assistant Treasurer, Banking and
Cash Management for Prudential.
LINDA S. DOUGHERTY, Vice President, Comptroller and Chief Accounting Officer. --
Vice President and Comptroller, Prudential Individual Insurance Group since
1997; Prior to 1997: Vice President, Accounting, Prudential.
JAMES C. DROZANOWSKI, Senior Vice President. -- Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996; 1995 to 1996:
President and Chief Executive Officer of Chase Manhattan Bank; 1993 to 1995:
Vice President, North America Customer Services, Chase Manhattan Bank; Prior to
1993: Operations Executive, Global Securities Services, Chase Manhattan Bank.
CLIFFORD E. KIRSCH, Chief Legal Officer. -- Chief Counsel, Variable Products,
Law Department of Prudential since 1995; 1994 to 1995: Associate General Counsel
with Paine Webber; Prior to 1994: Assistant Director in the Division of
Investment Management with the Securities and Exchange Commission.
FRANK P. MARINO, Senior Vice President. -- Vice President, Policyowner Relations
Department, Prudential Individual Insurance Group since 1996; Prior to 1996:
Senior Vice President, Prudential Mutual Fund Services.
MARIO A. MOSSE, Senior Vice President. -- Vice President, Annuity Services,
Prudential Investments since 1996; Prior to 1996: Vice President, Chase
Manhattan Bank.
SHIRLEY H. SHAO, Senior Vice President and Chief Actuary. -- Vice President and
Associate Actuary, Prudential.
30
<PAGE>
KAREN L. SHAPIRO, Senior Vice President. -- Vice President, Prudential
Individual Insurance Group since 1996; Vice President and Associate General
Counsel, Prudential Securities Incorporated 1993 to 1996; Prior to 1993: Senior
Associate with Shaw, Pittman, Potts and Trowbridge.
The business address of all directors and officers of Pruco Life is 213
Washington Street, Newark, New Jersey 07102-2992.
* SUBSIDIARY OF PRUDENTIAL
31
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS (UNAUDITED)
March 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3]............................................ $ 48,030,757 $ 68,170,396 $ 682,593,108 $ 997,185,003 $ 529,268,221
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 48,113,949 $ 67,995,829 $ 682,250,383 $ 996,096,933 $ 527,302,786
Equity of Pruco Life Insurance Company.......... (83,192) 174,567 342,725 1,088,070 1,965,435
-------------- -------------- -------------- -------------- --------------
$ 48,030,757 $ 68,170,396 $ 682,593,108 $ 997,185,003 $ 529,268,221
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS (UNAUDITED)
For the period ended March 31, 1997
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 607,229 $ 0 $ 0 $ 0 $ 0
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A]..... 70,392 101,201 1,023,247 1,515,798 783,628
Reimbursement for excess expenses [Note 5D]..... (5,102) (7,233) (144,351) (612,660) (243,131)
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 65,290 93,968 878,896 903,138 540,497
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 541,939 (93,968) (878,896) (903,138) (540,497)
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain (loss) on shares redeemed
[average cost basis].......................... 0 59,195 2,041,500 2,460,956 757,283
Net unrealized gain (loss) on investments....... 0 (279,462) 8,288,632 (8,953,350) (211,927)
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 (220,267) 10,330,132 (6,492,394) 545,356
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 541,939 $ (314,235) $ 9,451,236 $ (7,395,532) $ 4,859
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A1
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3] $ 35,841,769 $ 93,275,816 $ 61,130,350 $ 23,578,676 $ 11,920,376
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 35,761,682 $ 91,888,710 $ 61,123,482 $ 23,579,494 $ 11,816,643
Equity of Pruco Life Insurance Company 80,087 1,387,106 6,868 (818) 103,733
-------------- -------------- -------------- -------------- --------------
$ 35,841,769 $ 93,275,816 $ 61,130,350 $ 23,578,676 $ 11,920,376
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK EQUITY
BOND INDEX INCOME GLOBAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 0 $ 0 $ 0 $ 0
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 53,319 139,538 90,755 33,998
Reimbursement for excess expenses [Note 5D] 0 0 0 0
-------------- -------------- -------------- --------------
NET EXPENSES 53,319 139,538 90,755 33,998
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) (53,319) (139,538) (90,755) (33,998)
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain (loss) on shares redeemed
[average cost basis] (6,057) 996,385 42,951 31,979
Net unrealized gain (loss) on investments 151,609 1,206,803 417,248 (223,104)
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 145,552 2,203,188 460,199 (191,125)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 92,233 $ 2,063,650 $ 369,444 $ (225,123)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
PRUDENTIAL
JENNISON
--------------
<S> <C>
INVESTMENT INCOME
Dividend distributions received $ 0
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 17,525
Reimbursement for excess expenses [Note 5D] 0
--------------
NET EXPENSES 17,525
--------------
NET INVESTMENT INCOME (LOSS) (17,525)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain (loss) on shares redeemed
[average cost basis] 124,351
Net unrealized gain (loss) on investments (442,036)
--------------
NET GAIN (LOSS) ON INVESTMENTS (317,685)
--------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (335,210)
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A2
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended March 31, 1997, December 31, 1996, and December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
---------------------------------------------- ---------------------------------------------
01/01/97 01/01/97
TO 01/01/96 01/01/95 TO 01/01/96 01/01/95
03/31/97 TO TO 03/31/97 TO TO
(UNAUDITED) 12/31/96 12/31/95 (UNAUDITED) 12/31/96 12/31/95
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 541,939 $ 2,270,980 $ 2,620,276 $ (93,968) $ 4,052,120 $ 3,860,873
Capital gains distributions
received........................ 0 0 0 0 0 144,746
Realized gain (loss) on shares
redeemed
[average cost basis]............ 0 0 0 59,195 133,542 75,353
Net unrealized gain (loss) on
investments..................... 0 0 0 (279,462) (1,490,302) 7,114,539
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS......... 541,939 2,270,980 2,620,276 (314,235) 2,695,360 11,195,511
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS..... (905,361) (4,243,121) (740,753) (1,500,270) 1,116,168 (1,432,720)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7].......................... (208,348) 22,759 (89,480) 120,238 33,769 (94,534)
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ (571,770) (1,949,382) 1,790,043 (1,694,267) 3,845,297 9,668,257
NET ASSETS:
Beginning of year................. 48,602,527 50,551,909 48,761,866 69,864,663 66,019,366 56,351,109
-------------- -------------- -------------- -------------- -------------- -------------
End of year....................... $ 48,030,757 $ 48,602,527 $ 50,551,909 $ 68,170,396 $ 69,864,663 $ 66,019,366
-------------- -------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A3
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
---------------------------------------------- --------------
01/01/97 01/01/97
TO 01/01/96 01/01/95 TO
03/31/97 TO TO 03/31/97
(UNAUDITED) 12/31/96 12/31/95 (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (878,896) $ 12,384,332 $ 8,602,440 $ (903,138)
Capital gains distributions
received 0 60,055,192 20,556,916 0
Realized gain (loss) on shares
redeemed
[average cost basis] 2,041,500 6,145,351 1,265,358 2,460,956
Net unrealized gain (loss) on
investments 8,288,632 25,824,063 105,422,478 (8,953,350)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 9,451,236 104,408,938 135,847,192 (7,395,532)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (5,149,893) (13,252,943) 13,327,159 (13,121,574)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7] 142,790 (127,887) 153,934 410,712
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 4,444,133 91,028,108 149,328,285 (20,106,394)
NET ASSETS:
Beginning of year 678,148,975 587,120,867 437,792,582 1,017,291,397
-------------- -------------- -------------- --------------
End of year $ 682,593,108 $ 678,148,975 $ 587,120,867 $ 997,185,003
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
CONSERVATIVE
BALANCED
----------------------------------------------
01/01/97
01/01/96 01/01/95 TO 01/01/96 01/01/95
TO TO 03/31/97 TO TO
12/31/96 12/31/95 (UNAUDITED) 12/31/96 12/31/95
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 26,508,631 $ 24,734,903 $ (540,497) $ 19,022,611 $ 17,956,379
Capital gains distributions
received 95,799,304 39,033,998 0 32,702,701 17,065,189
Realized gain (loss) on shares
redeemed
[average cost basis] 9,236,814 5,763,771 757,283 4,364,767 2,716,236
Net unrealized gain (loss) on
investments (10,204,679) 113,356,027 (211,927) 3,618,761 35,828,712
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 121,340,070 182,888,699 4,859 59,708,840 73,566,516
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS (41,031,839) (31,598,849) (6,757,945) (25,728,075) (18,484,820)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7] 533,513 (1,895,990) 1,676,442 207,529 (806,795)
-------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 80,841,744 149,393,860 (5,076,644) 34,188,294 54,274,901
NET ASSETS:
Beginning of year 936,449,653 787,055,793 534,344,865 500,156,571 445,881,670
-------------- -------------- -------------- -------------- --------------
End of year $1,017,291,397 $ 936,449,653 $ 529,268,221 $ 534,344,865 $ 500,156,571
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A4
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended March 31, 1997, December 31, 1996, and December 31, 1995
<TABLE>
<CAPTION>
SUBACCOUNTS
----------------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
---------------------------------------------- ----------------------------------------------
01/01/97 01/01/97
TO 01/01/96 01/01/95 TO 01/01/96 01/01/95
03/31/97 TO TO 03/31/97 TO TO
(UNAUDITED) 12/31/96 12/31/95 (UNAUDITED) 12/31/96 12/31/95
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ (53,319) $ 3,194,402 $ 3,185,876 $ (139,538) $ 983,164 $ 870,823
Capital gains distributions
received........................ 0 0 0 0 1,013,015 454,847
Realized gain (loss) on shares
redeemed
[average cost basis]............ (6,057) (26,717) (44,447) 996,385 515,477 1,387,759
Net unrealized gain (loss) on
investments..................... 151,609 386,086 1,861,218 1,206,803 12,527,056 14,103,114
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS......... 92,233 3,553,771 5,002,647 2,063,650 15,038,712 16,816,543
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS..... (452,968) (1,115,027) (1,077,084) 154,649 10,720,960 623,288
-------------- -------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7].......................... 66,288 (6,897) 5,385 780,888 396,129 132,045
-------------- -------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ (294,447) 2,431,847 3,930,948 2,999,187 26,155,801 17,571,876
NET ASSETS:
Beginning of year................. 36,136,216 33,704,369 29,773,421 90,276,629 64,120,828 46,548,952
-------------- -------------- -------------- -------------- -------------- --------------
End of year....................... $ 35,841,769 $ 36,136,216 $ 33,704,369 $ 93,275,816 $ 90,276,629 $ 64,120,828
-------------- -------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A5
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
EQUITY
INCOME GLOBAL
---------------------------------------------- --------------
01/01/97 01/01/97
TO 01/01/96 01/01/95 TO
03/31/97 TO TO 03/31/97
(UNAUDITED) 12/31/96 12/31/95 (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (90,755) $ 1,568,503 $ 1,499,078 $ (33,998)
Capital gains distributions
received 0 1,879,859 2,122,385 0
Realized gain (loss) on shares
redeemed
[average cost basis] 42,951 417,132 107,006 31,979
Net unrealized gain (loss) on
investments 417,248 6,642,405 4,726,822 (223,104)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 369,444 10,507,899 8,455,291 (225,123)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS 773,595 (1,064,633) 3,721,237 1,184,911
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7] (13,839) (61,045) 75,709 (148,913)
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 1,129,200 9,382,221 12,252,237 810,875
NET ASSETS:
Beginning of year 60,001,150 50,618,929 38,366,692 22,767,801
-------------- -------------- -------------- --------------
End of year $ 61,130,350 $ 60,001,150 $ 50,618,929 $ 23,578,676
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
PRUDENTIAL
JENNISON*
----------------------------------------------
01/01/97
01/01/96 01/01/95 TO 01/01/96 01/01/95
TO TO 03/31/97 TO TO
12/31/96 12/31/95 (UNAUDITED) 12/31/96 12/31/95
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 380,383 $ 137,947 $ (17,525) $ (19,230) $ (2,483)
Capital gains distributions
received 347,618 270,758 0 0 0
Realized gain (loss) on shares
redeemed
[average cost basis] 36,315 60,621 124,351 32,821 3,407
Net unrealized gain (loss) on
investments 2,363,101 1,314,446 (442,036) 870,328 59,770
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 3,127,417 1,783,772 (335,210) 883,919 60,694
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS 5,614,035 1,377,627 1,167,481 8,604,081 1,554,794
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 7] 18,594 (539,673) (183,956) 71,804 96,769
-------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 8,760,046 2,621,726 648,315 9,559,804 1,712,257
NET ASSETS:
Beginning of year 14,007,755 11,386,029 11,272,061 1,712,257 0
-------------- -------------- -------------- -------------- --------------
End of year $ 22,767,801 $ 14,007,755 $ 11,920,376 $ 11,272,061 $ 1,712,257
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
*Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A7 THROUGH A10.
A6
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
NOTE 1: GENERAL
Pruco Life Variable Appreciable Account ("the Account") was established on
January 13, 1984 under Arizona law as a separate investment account of Pruco
Life Insurance Company ("Pruco Life") which is a wholly-owned subsidiary of The
Prudential Insurance Company of America ("Prudential"). The assets of the
Account are segregated from Pruco Life's other assets.
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are ten subaccounts within the Account
available to Contract holders of VUL, as of March 31, 1997, each of which
invests in a corresponding portfolio of The Prudential Series Fund, Inc. (the
"Series Fund"). The Series Fund is a diversified open-end management investment
company, and is managed by Prudential. Beginning July 1, 1997, five additional
subaccounts, investing in any of the non-Prudential administered variable
subaccounts shown in Note 3, will become available to VUL Contract owners.
New sales of the VAL product which invests in the Account were discontinued as
of May 1, 1992. However, premium payments made by current VAL Contract owners
will continue to be received by the Account. All premium payments for the VUL
product will be received by the Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
Investments--The investments in shares of the Series Fund or non-Prudential
administered subaccounts are stated at the net asset value of the respective
portfolio.
Security Transactions--Realized gains and losses on security transactions are
reported on an average cost basis. Purchase and sale transactions are recorded
as of the trade date of the security being purchased or sold.
Distributions Received--Dividend and capital gain distributions received are
reinvested in additional shares of the Series Fund or non-Prudential
administered subaccounts and are recorded on the ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a position in the
Account for the purpose of administering activity in the Account. The activity
includes unit transactions, fund share transactions, and expense processing.
Pruco Life monitors the balance daily and transfers funds based upon anticipated
activity. At times, Pruco Life may owe an amount to the Account, which is
reflected in Pruco Life's equity as a negative balance. The position does not
have an effect on the Contract owner's account or the related unit value.
A7
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. AND
NON-PRUDENTIAL ADMINISTERED VARIABLE SUBACCOUNTS
The net asset value per share for each portfolio of the Series Fund or
Non-Prudential administered variable subaccount, the number of shares of each
portfolio held by the subaccounts of the Account and the aggregate cost of
investments in such shares at March 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
-----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,803,076 6,181,647 24,938,780 56,447,555 34,078,049
Net asset value
per share: $ 10.00000 $ 11.02787 $ 27.37075 $ 17.66569 $ 15.53106
Cost: $ 48,030,757 $ 66,337,068 $467,151,341 $ 847,989,861 $ 463,326,620
<CAPTION>
PORTFOLIOS (CONTINUED)
-----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,538,880 3,830,344 3,276,279 1,330,974 851,569
Net asset value
per share: $ 7.89661 $ 24.35181 $ 18.65847 $ 17.71535 $ 13.99813
Cost: $ 36,749,822 $ 58,589,072 $ 48,814,156 $ 20,683,329 $ 11,432,314
<CAPTION>
PORTFOLIOS (CONTINUED)
-----------------------------------------------------------------------------
AIM V.I. JANUS MFS T. ROWE PRICE AMERICAN
VALUE ASPEN EMERGING INTERNATIONAL CENTURY
FUND GROWTH GROWTH SERIES STOCK PORTFOLIO VALUE
------------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: -- -- -- -- --
Net asset value
per share: -- -- -- -- --
Cost: -- -- -- -- --
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total Contract owner equity
for the period ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 27,097,875.868 25,892,578.488 125,983,549.170 272,637,005.966 170,007,825.034
Unit value
(VAL):.......... $ 1.77401 $ 2.62589 $ 5.41446 $ 3.65327 $ 3.10161
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 48,071,903 $ 67,991,063 $ 682,132,888 $ 996,016,595 $ 527,297,970
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... 41,466.513 4,793.694 114,802.829 80,864.982 4,783.659
Unit value
(VUL):.......... $ 1.01399 $ 0.99414 $ 1.02345 $ 0.99349 $ 1.00665
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... $ 42,047 $ 4,766 $ 117,495 $ 80,339 $ 4,815
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 48,113,949 $ 67,995,829 $ 682,250,383 $ 996,096,933 $ 527,302,786
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 16,403,392.143 29,098,570.424 18,978,425.802 17,856,987.992 8,490,029.673
Unit value
(VAL):.......... $ 2.18007 $ 3.14460 $ 3.21588 $ 1.31949 $ 1.38994
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 35,760,543 $ 91,503,365 $ 61,032,340 $ 23,562,117 $ 11,800,632
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... 1,130.106 375,489.192 88,332.018 17,120.970 16,634.791
Unit value
(VUL):.......... $ 1.00775 $ 1.02625 $ 1.03181 $ 1.01496 $ 0.96251
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... $ 1,139 $ 385,346 $ 91,142 $ 17,377 $ 16,011
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 35,761,682 $ 91,888,710 $ 61,123,482 $ 23,579,494 $ 11,816,643
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
A8
<PAGE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective annual rate of
0.60% are applied against the net assets representing equity of VAL and VUL
Contract owners held in each subaccount. Mortality risk is that Contract
holders may not live as long as estimated and expense risk is that the cost
of issuing and administering the policies may exceed the estimated expenses.
For March 31, 1997, the amount of these charges paid to Pruco Life for the
VAL product was $3,902,581 and for the VUL product was $249.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, a deferred sales charge is
imposed upon the surrender of certain variable life insurance contracts to
compensate Pruco Life for sales and other marketing expenses. The amount of
any sales charge will depend on the number of years that have elapsed since
the Contract was issued. No sales charge will be imposed after the tenth
year of the Contract. No sales charge will be imposed on death benefits. For
March 31, 1997, the amount of these charges paid to Pruco Life for VAL was
$778,789 and VUL was $0.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value from VAL Contracts. For March 31, 1997, the amount of these
charges paid to Pruco Life for VAL was $54,109.
D. Expense Reimbursement
Pursuant to a prior merger agreement, the Account is reimbursed by Pruco
Life for expenses in excess of 0.40% of the VAL product's average daily net
assets incurred by the Money Market, Diversified Bond, Equity, Flexible
Managed, and the Conservative Balanced Portfolios of the Series Fund. For
March 31, 1997, the amount of these reimbursements totaled $1,012,477.
E. Cost of Insurance Charges
Contract holder contributions are applied to the Account net of the
following charges: transaction costs, premium taxes, sales loads, monthly
administration charges, and death benefit risk charges. For March 31, 1997,
Pruco Life received from VAL Contract owners $1,718,273, $2,121,770,
$320,653, $3,292,300 and $619,865, and from VUL Contract owners $0, $61,472,
$0, $2,876 and $855.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" under the Internal Revenue
Code and the operations of the Account form a part of and are taxed with those
of Pruco Life. Under current federal law, no federal income taxes are payable by
the Account. As such, no provision for tax liability has been recorded.
A9
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
NOTE 8: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the period
ended March 31,
1997
Purchases......... $ 1,970,000 $ 82,000 $ 297,000 $ 82,000 $ 11,000
Sales............. $ (3,149,000) $ (1,556,000) $ (6,183,000) $ (13,696,000) $ (5,633,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the period
ended March 31,
1997
Purchases......... $ 317,000 $ 3,349,000 $ 859,000 $ 1,236,000 $ 2,214,000
Sales............. $ (757,000) $ (2,553,000) $ (190,000) $ (234,000) $ (1,248,000)
</TABLE>
A10
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3]............................................ $ 48,602,527 $ 69,864,663 $ 678,148,975 $1,017,291,397 $ 534,344,865
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners....................... $ 48,479,537 $ 69,810,275 $ 677,939,121 $1,016,601,979 $ 534,039,090
Equity of Pruco Life Insurance Company.......... 122,990 54,388 209,854 689,418 305,775
-------------- -------------- -------------- -------------- --------------
$ 48,602,527 $ 69,864,663 $ 678,148,975 $1,017,291,397 $ 534,344,865
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SUBACCOUNTS
------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received................. $ 2,545,618 $ 4,422,147 $ 15,452,502 $ 29,870,591 $ 21,071,449
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A]..... 295,628 403,154 3,759,455 5,804,428 3,078,977
Reimbursement for excess expenses [Note 5D]..... (20,990) (33,127) (691,285) (2,442,468) (1,030,139)
-------------- -------------- -------------- -------------- --------------
NET EXPENSES...................................... 274,638 370,027 3,068,170 3,361,960 2,048,838
-------------- -------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS)...................... 2,270,980 4,052,120 12,384,332 26,508,631 19,022,611
-------------- -------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received............ 0 0 60,055,192 95,799,304 32,702,701
Realized gain (loss) on shares redeemed
[average cost basis].......................... 0 133,542 6,145,351 9,236,814 4,364,767
Net unrealized gain (loss) on investments....... 0 (1,490,302) 25,824,063 (10,204,679) 3,618,761
-------------- -------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS.................... 0 (1,356,760) 92,024,606 94,831,439 40,686,229
-------------- -------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $ 2,270,980 $ 2,695,360 $ 104,408,938 $ 121,340,070 $ 59,708,840
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A11
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in shares of The Prudential Series
Fund, Inc. Portfolios at net asset value [Note
3] $ 36,136,216 $ 90,276,629 $ 60,001,150 $ 22,767,801 $ 11,272,061
-------------- -------------- -------------- -------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
Equity of Pruco Life Insurance Company 15,169 648,149 25,026 146,967 274,862
-------------- -------------- -------------- -------------- --------------
$ 36,136,216 $ 90,276,629 $ 60,001,150 $ 22,767,801 $ 11,272,061
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
HIGH
YIELD STOCK EQUITY
BOND INDEX INCOME GLOBAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend distributions received $ 3,403,479 $ 1,433,253 $ 1,891,825 $ 488,012
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 209,077 450,089 323,322 107,629
Reimbursement for excess expenses [Note 5D] 0 0 0 0
-------------- -------------- -------------- --------------
NET EXPENSES 209,077 450,089 323,322 107,629
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 3,194,402 983,164 1,568,503 380,383
-------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 0 1,013,015 1,879,859 347,618
Realized gain (loss) on shares redeemed
[average cost basis] (26,717) 515,477 417,132 36,315
Net unrealized gain (loss) on investments 386,086 12,527,056 6,642,405 2,363,101
-------------- -------------- -------------- --------------
NET GAIN (LOSS) ON INVESTMENTS 359,369 14,055,548 8,939,396 2,747,034
-------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,553,771 $ 15,038,712 $ 10,507,899 $ 3,127,417
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
PRUDENTIAL
JENNISON
--------------
<S> <C>
INVESTMENT INCOME
Dividend distributions received $ 16,655
EXPENSES
Charges to Contract owners for assuming
mortality risk and expense risk [Note 5A] 35,885
Reimbursement for excess expenses [Note 5D] 0
--------------
NET EXPENSES 35,885
--------------
NET INVESTMENT INCOME (LOSS) (19,230)
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Capital gains distributions received 0
Realized gain (loss) on shares redeemed
[average cost basis] 32,821
Net unrealized gain (loss) on investments 870,328
--------------
NET GAIN (LOSS) ON INVESTMENTS 903,149
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 883,919
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A12
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED
MARKET BOND
---------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 2,270,980 $ 2,620,276 $ 1,649,101 $ 4,052,120 $ 3,860,873 $ 3,400,785
Capital gains distributions
received........................ 0 0 0 0 144,746 133,233
Realized gain (loss) on shares
redeemed
[average cost basis]............ 0 0 0 133,542 75,353 (39,688)
Net unrealized gain (loss) on
investments..................... 0 0 0 (1,490,302) 7,114,539 (5,814,428)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS......... 2,270,980 2,620,276 1,649,101 2,695,360 11,195,511 (2,320,098)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7].......................... (4,243,121) (740,753) 174,399 1,116,168 (1,432,720) (3,900,361)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8].......................... 22,759 (89,480) (486,387) 33,769 (94,534) 24,099
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ (1,949,382) 1,790,043 1,337,113 3,845,297 9,668,257 (6,196,360)
NET ASSETS:
Beginning of year................. 50,551,909 48,761,866 47,424,753 66,019,366 56,351,109 62,547,469
-------------- -------------- -------------- -------------- -------------- --------------
End of year....................... $ 48,602,527 $ 50,551,909 $ 48,761,866 $ 69,864,663 $ 66,019,366 $ 56,351,109
-------------- -------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A13
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
FLEXIBLE
EQUITY MANAGED
---------------------------------------------- --------------
1996 1995 1994 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 12,384,332 $ 8,602,440 $ 7,817,827 $ 26,508,631
Capital gains distributions
received 60,055,192 20,556,916 18,199,834 95,799,304
Realized gain (loss) on shares
redeemed
[average cost basis] 6,145,351 1,265,358 1,432,168 9,236,814
Net unrealized gain (loss) on
investments 25,824,063 105,422,478 (17,636,131) (10,204,679)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 104,408,938 135,847,192 9,813,698 121,340,070
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (13,252,943) 13,327,159 1,930,473 (41,031,839)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (127,887) 153,934 (486,070) 533,513
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 91,028,108 149,328,285 11,258,101 80,841,744
NET ASSETS:
Beginning of year 587,120,867 437,792,582 426,534,481 936,449,653
-------------- -------------- -------------- --------------
End of year $ 678,148,975 $ 587,120,867 $ 437,792,582 $1,017,291,397
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
CONSERVATIVE
BALANCED
----------------------------------------------
1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 24,734,903 $ 19,391,523 $ 19,022,611 $ 17,956,379 $ 13,772,420
Capital gains distributions
received 39,033,998 22,635,794 32,702,701 17,065,189 4,752,103
Realized gain (loss) on shares
redeemed
[average cost basis] 5,763,771 2,045,045 4,364,767 2,716,236 925,009
Net unrealized gain (loss) on
investments 113,356,027 (73,072,549) 3,618,761 35,828,712 (25,603,121)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 182,888,699 (29,000,187) 59,708,840 73,566,516 (6,153,589)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (31,598,849) (15,011,537) (25,728,075) (18,484,820) (3,697,057)
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (1,895,990) 1,559,318 207,529 (806,795) 172,937
-------------- -------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 149,393,860 (42,452,406) 34,188,294 54,274,901 (9,677,709)
NET ASSETS:
Beginning of year 787,055,793 829,508,199 500,156,571 445,881,670 455,559,379
-------------- -------------- -------------- -------------- --------------
End of year $ 936,449,653 $ 787,055,793 $ 534,344,865 $ 500,156,571 $ 445,881,670
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A14
<PAGE>
FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK
BOND INDEX
---------------------------------------------- ---------------------------------------------
1996 1995 1994 1996 1995 1994
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss)...... $ 3,194,402 $ 3,185,876 $ 2,882,389 $ 983,164 $ 870,823 $ 843,636
Capital gains distributions
received........................ 0 0 23 1,013,015 454,847 68,595
Realized gain (loss) on shares
redeemed
[average cost basis]............ (26,717) (44,447) (41,868) 515,477 1,387,759 574,991
Net unrealized gain (loss) on
investments..................... 386,086 1,861,218 (3,901,821) 12,527,056 14,103,114 (1,293,204)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS......... 3,553,771 5,002,647 (1,061,277) 15,038,712 16,816,543 194,018
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7].......................... (1,115,027) (1,077,084) (1,682,842) 10,720,960 623,288 (263,376)
-------------- -------------- -------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8].......................... (6,897) 5,385 (94,816) 396,129 132,045 92,281
-------------- -------------- -------------- -------------- -------------- -------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 2,431,847 3,930,948 (2,838,935) 26,155,801 17,571,876 22,923
NET ASSETS:
Beginning of year................. 33,704,369 29,773,421 32,612,356 64,120,828 46,548,952 46,526,029
-------------- -------------- -------------- -------------- -------------- -------------
End of year....................... $ 36,136,216 $ 33,704,369 $ 29,773,421 $ 90,276,629 $ 64,120,828 $ 46,548,952
-------------- -------------- -------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------- -------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A15
<PAGE>
<TABLE>
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------
EQUITY
INCOME GLOBAL*
---------------------------------------------- --------------
1996 1995 1994 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 1,568,503 $ 1,499,078 $ 1,108,691 $ 380,383
Capital gains distributions
received 1,879,859 2,122,385 1,981,250 347,618
Realized gain (loss) on shares
redeemed
[average cost basis] 417,132 107,006 76,758 36,315
Net unrealized gain (loss) on
investments 6,642,405 4,726,822 (3,029,605) 2,363,101
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 10,507,899 8,455,291 137,094 3,127,417
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] (1,064,633) 3,721,237 8,440,504 5,614,035
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (61,045) 75,709 (464,805) 18,594
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 9,382,221 12,252,237 8,112,793 8,760,046
NET ASSETS:
Beginning of year 50,618,929 38,366,692 30,253,899 14,007,755
-------------- -------------- -------------- --------------
End of year $ 60,001,150 $ 50,618,929 $ 38,366,692 $ 22,767,801
-------------- -------------- --------------
-------------- -------------- --------------
--------------
--------------
*Commenced
Business
on 5/1/94
<CAPTION>
PRUDENTIAL
JENNISON**
------------------------------
1995 1994 1996 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 137,947 $ (5,689) $ (19,230) $ (2,483)
Capital gains distributions
received 270,758 3,344 0 0
Realized gain (loss) on shares
redeemed
[average cost basis] 60,621 0 32,821 3,407
Net unrealized gain (loss) on
investments 1,314,446 (559,095) 870,328 59,770
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM OPERATIONS 1,783,772 (561,440) 883,919 60,694
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
[NOTE 7] 1,377,627 11,335,055 8,604,081 1,554,794
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS
RESULTING FROM EQUITY TRANSFERS
[NOTE 8] (539,673) 612,414 71,804 96,769
-------------- -------------- -------------- --------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 2,621,726 11,386,029 9,559,804 1,712,257
NET ASSETS:
Beginning of year 11,386,029 0 1,712,257 0
-------------- -------------- -------------- --------------
End of year $ 14,007,755 $ 11,386,029 $ 11,272,061 $ 1,712,257
-------------- --------------
-------------- -------------- -------------- --------------
-------------- --------------
**Commenced
Business
on 5/1/95
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A17 THROUGH A21.
A16
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE VARIABLE UNIVERSAL LIFE SUBACCOUNTS OF
PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1: GENERAL
Pruco Life Variable Appreciable Account ("the Account") was established on
January 13, 1984 under Arizona law as a separate investment account of Pruco
Life Insurance Company ("Pruco Life") which is a wholly-owned subsidiary of The
Prudential Insurance Company of America ("Prudential"). The assets of the
Account are segregated from Pruco Life's other assets. Currently only Pruco
Life's Variable Appreciable Life ("VAL") Contracts invest in the Account. Pruco
Life's Variable Universal Life ("VUL") Contracts will begin investing in the
Account on January 24, 1997.
The Account is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust. There are ten subaccounts within the Account
available to Contract holders of VUL. Each of the subaccounts invests only in a
corresponding portfolio of The Prudential Series Fund, Inc. (the "Series Fund").
The Series Fund is a diversified open-end management investment company, and is
managed by Prudential.
New sales of the VAL product which invests in the Account were discontinued as
of May 1, 1992. However, premium payments made by current VAL Contract owners
will continue to be received by the Account. All premium payments for the VUL
product will be received by the Account.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
Investments--The investments in shares of the Series Fund are stated at the net
asset value of the respective portfolio.
Security Transactions--Realized gains and losses on security transactions are
reported on an average cost basis. Purchase and sale transactions are recorded
as of the trade date of the security being purchased or sold.
Distributions Received--Dividend and capital gain distributions received are
reinvested in additional shares of the Series Fund and are recorded on
ex-dividend date.
Equity of Pruco Life Insurance Company--Pruco Life maintains a position in the
Account for the purpose of administering activity in the Account. The activity
includes unit transactions, fund share transactions, and expense processing.
Pruco Life monitors the balance daily and transfers funds based upon anticipated
activity. At times, Pruco Life may owe an amount to the Account, which is
reflected in Pruco Life's equity as a negative balance. The position does not
have an effect on the Contract owner's account or the related unit value.
A17
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL SERIES FUND, INC. PORTFOLIOS
The net asset value per share for each portfolio of the Series Fund, the number
of shares of each portfolio held by the subaccounts of the Account and the
aggregate cost of investments in such shares at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,860,253 6,313,778 25,149,332 57,190,947 34,435,961
Net asset value
per share: $ 10.00000 $ 11.06543 $ 26.96489 $ 17.78763 $ 15.51706
Cost: $ 48,602,527 $ 67,751,873 $ 470,995,841 $ 859,142,904 $ 468,191,337
<CAPTION>
PORTFOLIOS (CONTINUED)
----------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of shares: 4,593,106 3,801,968 3,241,585 1,275,168 786,980
Net asset value
per share: $ 7.86749 $ 23.74471 $ 18.50982 $ 17.85474 $ 14.32319
Cost: $ 37,195,879 $ 56,796,687 $ 48,102,205 $ 19,649,350 $ 10,341,963
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total Contract owner equity
for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 27,635,005.343 26,475,879.397 126,934,924.340 276,125,230.858 172,284,568.110
Unit value
(VAL):.......... $ 1.75428 $ 2.63675 $ 5.34084 $ 3.68167 $ 3.09975
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 48,479,537 $ 69,810,275 $ 677,939,121 $ 1,016,601,979 $ 534,039,090
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... -- -- -- -- --
Unit value
(VUL):.......... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 48,479,537 $ 69,810,275 $ 677,939,121 $ 1,016,601,979 $ 534,039,090
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Units Outstanding
(VAL):........... 16,605,774.477 29,188,289.443 18,772,398.676 17,029,016.012 7,721,125.596
Unit value
(VAL):.......... $ 2.17521 $ 3.07070 $ 3.19491 $ 1.32837 $ 1.42430
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VAL):... $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Units
Outstanding
(VUL):.......... -- -- -- -- --
Unit value
(VUL):.......... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
Contract Owner
Equity (VUL):... -- -- -- -- --
----------------- ----------------- ----------------- ----------------- -----------------
TOTAL CONTRACT
OWNER EQUITY:..... $ 36,121,047 $ 89,628,480 $ 59,976,124 $ 22,620,834 $ 10,997,199
----------------- ----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>
A18
<PAGE>
NOTE 5: CHARGES AND EXPENSES
A. Mortality Risk and Expense Risk Charges
The mortality risk and expense risk charges at an effective annual rate of
0.60% are applied against the net assets representing equity of VAL and VUL
Contract owners held in each subaccount. Mortality risk is that Contract
holders may not live as long as estimated and expense risk is that the cost
of issuing and administering the policies may exceed the estimated expenses.
For 1996, the amount of these charges paid to Pruco Life for the VAL product
was $14,713,391.
B. Deferred Sales Charge
Subsequent to a Contract owner redemption, a deferred sales charge is
imposed upon the surrender of certain variable life insurance contracts to
compensate Pruco Life for sales and other marketing expenses. The amount of
any sales charge will depend on the number of years that have elapsed since
the Contract was issued. No sales charge will be imposed after the tenth
year of the Contract. No sales charge will be imposed on death benefits. For
1996, the amount of these charges paid to Pruco Life for VAL was $3,439,306.
C. Partial Withdrawal Charge
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value from VAL Contracts. For 1996, the amount of these charges
paid to Pruco Life for VAL was $69,170.
D. Expense Reimbursement
Pursuant to a prior merger agreement, the Account is reimbursed by Pruco
Life for expenses in excess of 0.40% of the VAL product's average daily net
assets incurred by the Money Market, Diversified Bond, Equity, Flexible
Managed, and the Conservative Balanced Portfolios of the Series Fund. For
1996, the amount of these reimbursements totaled $4,218,009.
E. Cost of Insurance Charges
Contract holder contributions are applied to the Account net of the
following charges: transaction costs, premium taxes, sales loads, monthly
administration charges, and death benefit risk charges. During 1996, for
VAL, Pruco Life received from Contract owners $4,272,094, $5,444,940,
$393,203, $13,244,265 and $2,484,809, respectively for these charges.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" under the Internal Revenue
Code and the operations of the Account form a part of and are taxed with those
of Pruco Life. Under current federal law, no federal income taxes are payable by
the Account. As such, no provision for tax liability has been recorded.
A19
<PAGE>
NOTE 7: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PREMIUM PAYMENTS
AND OTHER OPERATING TRANSFERS
Contract owner activity in the subaccounts of the Account, for the year ended
December 31, 1996, was as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions,
net: $ 31,416,670 $ 12,684,816 $ 85,325,629 $ 115,822,666 $ 64,449,174
Contract Owner
Redemptions: $ (33,618,199) $ (14,081,345) $ (106,876,645) $ (146,140,657) $ (80,582,263)
Net Transfers
from(to) other
subaccounts or
fixed rate
option: $ (2,041,592) $ 2,512,697 $ 8,298,073 $ (10,713,848) $ (9,594,986)
<CAPTION>
SUBACCOUNTS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions,
net: $ 9,385,513 $ 16,779,382 $ 13,424,627 $ 6,463,503 $ 5,516,854
Contract Owner
Redemptions: $ (10,226,859) $ (17,552,325) $ (14,639,865) $ (6,683,555) $ (5,254,510)
Net Transfers
from(to) other
subaccounts or
fixed rate
option: $ (273,681) $ 11,493,903 $ 150,605 $ 5,834,087 $ 8,341,737
</TABLE>
NOTE 8: NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM EQUITY TRANSFERS
The increase (decrease) in net assets resulting from equity transfers represents
the net contributions (withdrawals) of Pruco Life to (from) the Account.
NOTE 9: UNIT ACTIVITY
Transactions in units (including transfers among subaccounts), for the year
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 18,317,198.320 6,032,489.291 19,318,824.308 33,929,159.280 22,253,843.498
Contract Owner
Redemptions: (20,797,006.538) (5,568,937.715) (21,974,064.812) (45,839,478.729) (31,093,009.761)
<CAPTION>
SUBACCOUNTS (CONTINUED)
---------------------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Contract Owner
Contributions: 4,533,364.255 10,183,057.448 4,799,710.141 10,050,734.228 10,385,284.939
Contract Owner
Redemptions: (5,073,116.794) (6,331,551.426) (5,166,776.253) (5,504,422.378) (3,950,760.606)
</TABLE>
A20
<PAGE>
NOTE 10: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Series Fund, Inc. were as follows:
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------------------------------------
MONEY DIVERSIFIED FLEXIBLE CONSERVATIVE
MARKET BOND EQUITY MANAGED BALANCED
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases......... $ 7,103,000 $ 4,249,000 $ 1,489,000 $ 226,000 $ 180,000
Sales............. $ (11,598,000) $ (3,444,000) $ (17,938,000) $ (43,999,000) $ (27,672,000)
<CAPTION>
PORTFOLIOS (CONTINUED)
--------------------------------------------------------------------------------
HIGH
YIELD STOCK EQUITY PRUDENTIAL
BOND INDEX INCOME GLOBAL JENNISON
-------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996
Purchases......... $ 1,698,000 $ 12,097,000 $ 1,158,000 $ 5,968,000 $ 9,767,000
Sales............. $ (3,029,000) $ (1,430,000) $ (2,607,000) $ (443,000) $ (1,127,000)
</TABLE>
A21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
Variable Universal Life Subaccounts of
Pruco Life Variable Appreciable Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of Money Market Subaccount,
Diversified Bond Subaccount, Equity Subaccount, Flexible Managed Subaccount,
Conservative Balanced Subaccount, High Yield Bond Subaccount, Stock Index
Subaccount, Equity Income Subaccount, Global Subaccount and Prudential Jennison
Subaccount of Pruco Life Variable Appreciable Account at December 31, 1996, and
the results of each of their operations and the changes in each of their net
assets for the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Pruco Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of shares owned in The Prudential Series Fund, Inc. at December 31,
1996, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 31, 1997
A22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
the Variable Universal Life subaccounts of
Pruco Life Variable Appreciable Account
and the Board of Directors
of Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying statements of changes in net assets of the
Variable Universal Life subaccounts of Pruco Life Variable Appreciable Account
of Pruco Life Insurance Company (comprising, respectively, the Money Market,
Diversified Bond, Equity, Flexible Managed, Conservative Balanced, High Yield
Bond, Stock Index, Equity Income, Global, and Prudential Jennison subaccounts)
for the periods presented for each of the two years ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the changes in net assets of each of the respective subaccounts
constituting the Pruco Life Variable Universal Account for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
A23
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
MARCH 31, DECEMBER 31,
1997 1996
----------- ----------
(000'S)
ASSETS
Fixed maturities
Held to maturity $ 372,690 $ 405,731
Available for sale 2,050,982 2,236,817
Equity securities 7,899 3,748
Mortgage loans 43,038 46,915
Policy loans 654,951 639,782
Other long term investments 1,417 4,528
Short term investments 415,196 169,830
----------- ----------
Total invested assets 3,546,173 3,507,351
----------- ----------
Cash 186,150 73,766
Deferred policy acquisition costs 648,168 633,159
Premiums due 8,912 9,084
Accrued investment income 61,882 62,110
Receivable from affiliates 10,500 1,901
Federal income tax receivable 539 7,191
Reinsurance recoverable on unpaid losses 27,014 27,014
Other assets 90,700 20,000
Separate Account assets 5,576,568 5,336,851
----------- ----------
TOTAL ASSETS $10,156,606 $9,678,427
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Future policy benefits and other
policyholders' liabilities $ 560,106 $ 557,351
Policyholders' account balances 2,181,626 2,188,862
Deferred federal income tax payable 149,768 148,960
Payable to affiliate 74,729 51,729
Other liabilities 239,325 55,090
Separate Account liabilities 5,546,151 5,277,454
----------- ----------
TOTAL LIABILITIES 8,751,705 8,279,446
----------- ----------
CONTINGENCIES
STOCKHOLDER'S EQUITY
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding
at March 31, 1997 and December 31, 1996 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment (losses) gains
(less deferred income tax) (1,197) 12,402
Retained earnings 964,016 944,497
----------- ----------
TOTAL STOCKHOLDER'S EQUITY 1,404,901 1,398,981
----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $10,156,606 $9,678,427
=========== ==========
B-1
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
-------- --------
(000'S)
REVENUES
Premiums $ 12,243 $ 10,555
Policy charges and fee income 76,333 78,805
Net investment income 59,221 60,851
Realized investment gains 4,919 7,175
Other income 5,850 2,739
-------- --------
TOTAL REVENUES 158,566 160,125
-------- --------
BENEFITS AND EXPENSES
Policyholders' benefits 49,332 39,822
Interest credited to policyholders' account balances 24,704 28,809
Other operating costs and expenses 52,305 32,051
-------- --------
TOTAL BENEFITS AND EXPENSES 126,341 100,682
-------- --------
Income before income tax provision 32,225 59,443
-------- --------
Income tax provision 12,706 20,805
-------- --------
NET INCOME $ 19,519 $ 38,638
======== ========
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
(000'S)
COMMON STOCK
Balance, beginning of year $ 2,500 $ 2,500
Issued during period -- --
---------- ----------
Balance, end of period 2,500 2,500
---------- ----------
PAID IN CAPITAL
Balance, beginning of year 439,582 439,582
Paid in during period -- --
---------- ----------
Balance, end of period 439,582 439,582
---------- ----------
NET UNREALIZED INVESTMENT (LOSSES) GAINS
(LESS DEFERRED INCOME TAX)
Balance, beginning of year 12,402 30,836
Net change in unrealized investment
(losses) gains (13,599) (18,434)
---------- ----------
Balance, end of period (1,197) 12,402
---------- ----------
RETAINED EARNINGS
Balance, beginning of year 944,497 795,275
Net income 19,519 149,222
---------- ----------
Balance, end of period 964,016 944,497
---------- ----------
TOTAL STOCKHOLDER'S EQUITY $1,404,901 $1,398,981
========== ==========
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1996
--------- ---------
(000'S)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,519 $ 38,638
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders'
liabilities 2,755 15,988
General account policy fee income (6,786) (13,427)
Interest credited to policyholders' account balances 24,704 28,809
Net decrease (increase) in Separate Accounts 28,980 (7,067)
Net realized investment gains (4,919) (7,175)
Amortization and other non-cash items 17,756 18,753
Change in:
Accrued investment income 228 2,177
Premiums due 172 (82)
Receivable from affiliates (8,599) 550
Deferred policy acquisition costs (15,009) (11,770)
Federal income tax receivable 6,652 13,660
Other assets (70,700) (1,149)
Payable to affiliate 23,000 (15,068)
Deferred federal income tax payable 808 (4,012)
Other liabilities 184,235 34,781
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES 202,796 93,606
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 35,890 26,584
Available for sale 719,943 888,902
Equity securities -- 21
Mortgage loans 3,957 1,839
Other long term investments 3,148 3
Investment real estate -- (7)
Payments for the purchase of:
Fixed maturities:
Held to maturity (3,150) (45,037)
Available for sale (560,311) (839,841)
Equity securities (4,163) (840)
Other long term investments (37) (501)
Policy loans (15,169) (17,750)
Net payments of short term investments (245,366) (75,599)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES (65,258) (62,226)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 330,710 83,407
Withdrawals (net of transfers to/from separate accounts) (355,864) (109,684)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES (25,154) (26,277)
--------- ---------
Net increase in Cash 112,384 5,103
Cash, beginning of year 73,766 41,435
--------- ---------
CASH, END OF PERIOD $ 186,150 $ 46,538
========= =========
</TABLE>
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
MARCH 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Pruco Life Insurance Company (Pruco Life), a stock life insurance
company, and its subsidiaries (collectively, the Company). Pruco Life has two
subsidiaries, Pruco Life Insurance Company of New Jersey and The Prudential Life
Insurance Company of Arizona. Pruco Life is a wholly-owned subsidiary of The
Prudential Insurance Company of America (Prudential), a mutual life insurance
company. The Company markets individual life insurance and deferred annuities
primarily through Prudential's sales force in the United States, and in Taiwan.
All significant intercompany balances and transactions have been eliminated in
consolidation.
B. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the other information and disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1996 included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results of operations. The
results of operations for the three months ended March 31, 1997 may not be
indicative of the results that may be expected for the year ending December 31,
1997.
C. RECLASSIFICATIONS
To facilitate comparisons with the current year, certain amounts in the prior
years have been reclassified.
2. CONTINGENCIES
Several actions have been brought against the Company on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by Prudential, the Company and agents appointed by Prudential and
the Company. Prudential has agreed to indemnify the Company for any and all
losses resulting from such litigation.
B-5
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<CAPTION>
DECEMBER 31,
1996 1995
----------- ------------
(000'S)
ASSETS
<S> <C> <C>
Fixed maturities
Held to maturity $ 405,731 $ 437,727
Available for sale 2,236,817 2,144,854
Equity securities 3,748 4,036
Mortgage loans 46,915 64,464
Investment real estate - 4,059
Policy loans 639,782 569,273
Other long term investments 4,528 4,159
Short term investments 169,830 228,016
----------- ------------
Total invested assets 3,507,351 3,456,588
----------- ------------
Cash 73,766 41,435
Deferred policy acquisition costs 633,159 566,976
Premiums due 9,084 6,367
Accrued investment income 62,110 59,862
Receivable from affiliates 1,901 8,275
Federal income tax receivable 7,191 6,375
Reinsurance recoverable on unpaid losses 27,014 27,914
Other assets 20,000 12,578
Separate Account assets 5,336,851 4,285,268
----------- ------------
TOTAL ASSETS $9,678,427 $8,471,638
=========== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Future policy benefits and other policyholders'
liabilities $ 557,351 $ 501,200
Policyholders' account balances 2,188,862 2,218,330
Deferred federal income tax payable 148,960 141,048
Payable to affiliate 51,729 41,584
Other liabilities 55,090 37,387
Separate Account liabilities 5,277,454 4,263,896
----------- ------------
Total Liabilities 8,279,446 7,203,445
----------- ------------
Contingencies - Note 9
Stockholder's Equity
Common Stock, $10 par value;
1,000,000 shares, authorized;
250,000 shares, issued and outstanding at
December 31, 1996 and 1995 2,500 2,500
Paid-in-capital 439,582 439,582
Net unrealized investment gains (less deferred
income tax) 12,402 30,836
Retained earnings 944,497 795,275
----------- ------------
Total Stockholder's Equity 1,398,981 1,268,193
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $9,678,427 $8,471,638
=========== ============
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-1
<PAGE>
<TABLE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
REVENUES
<S> <C> <C> <C>
Premiums $ 51,525 $ 42,089 $ 22,689
Policy charges and fee income 324,976 319,012 308,753
Net investment income 247,328 246,618 241,132
Realized investment gains (losses) 10,835 13,200 (41,074)
Other income 20,818 26,986 13,259
-----------------------------------
Total Revenues 655,482 647,905 544,759
-----------------------------------
BENEFITS AND EXPENSES
Policyholders' benefits 186,873 153,987 121,949
Interest credited to policyholders' account
balances 118,246 126,926 113,711
Other operating costs and expenses 122,006 134,790 179,173
-----------------------------------
Total Benefits and Expenses 427,125 415,703 414,833
-----------------------------------
Income before income tax provision 228,357 232,202 129,926
-----------------------------------
Income tax provision 79,135 79,558 48,031
-----------------------------------
NET INCOME $ 149,222 $ 152,644 $ 81,895
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-2
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-----------------------------------
(000'S)
Common Stock
<S> <C> <C> <C>
Balance, beginning of year $ 2,500 $ 2,500 $ 2,500
Issued during year - - -
-----------------------------------
Balance, end of year 2,500 2,500 2,500
-----------------------------------
Paid in Capital
Balance, beginning of year 439,582 439,582 439,582
Paid in during year - - -
-----------------------------------
Balance, end of year 439,582 439,582 439,582
-----------------------------------
Net Unrealized Investment Gains (Losses)
(Less Deferred Income Tax)
Balance, beginning of year 30,836 (1,349) -
Adoption of SFAS 115 - (39,762) -
Net change in unrealized investment
gains (losses) (18,434) 71,947 (1,349)
-----------------------------------
Balance, end of year 12,402 30,836 (1,349)
-----------------------------------
RETAINED EARNINGS
Balance, beginning of year 795,275 642,631 560,736
Net income 149,222 152,644 81,895
-----------------------------------
Balance, end of year 944,497 795,275 642,631
-----------------------------------
TOTAL STOCKHOLDER'S EQUITY $1,398,981 $1,268,193 $1,083,364
===================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-3
<PAGE>
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
------------------------------------------
(000'S)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 149,222 $ 152,644 $ 81,895
Adjustments to reconcile net income to net cash from
operating activities:
Increase in future policy benefits and other policyholders'
liabilities 56,151 22,877 31,932
General account policy fee income (50,286) (56,637) (48,401)
Interest credited to policyholders' account balances 118,246 126,926 113,711
Net decrease (increase) in Separate Accounts (38,025) (3,520) (4,121)
Net realized investment (gains) losses (10,835) (13,200) 41,074
Amortization and other non-cash items 26,709 (8,106) 6,228
Change in:
Accrued investment income (2,248) (480) (2,597)
Premiums due (2,717) (1,957) (1,374)
Receivable from affiliates 6,374 (758) (637)
Note receivable from affiliate -- -- 50,000
Deferred policy acquisition costs (66,183) 31,318 34,124
Federal income tax receivable (816) 12,031 (28,908)
Other assets (6,522) (12,689) (11,121)
Payable to affiliate 10,145 11,327 (24,029)
Deferred federal income tax payable 7,912 30,779 --
Other liabilities 17,703 (61,306) (5,293)
-----------------------------------------
Cash Flows From Operating Activities 214,830 229,249 232,483
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities:
Held to maturity 138,127 144,898 2,710,423
Available for sale 3,886,254 1,886,687 --
Equity securities 7,527 5,557 1,910
Mortgage loans 19,226 7,395 10,821
Other long term investments 288 1,559 607
Investment real estate 4,488 2,926 8,677
Payments for the purchase of:
Fixed maturities:
Held to maturity (114,494) (135,092) (2,561,082)
Available for sale (4,008,810) (1,741,139) --
Equity securities (4,697) (4,279) (2,436)
Mortgage loans -- -- (35,276)
Other long term investments (657) (1,674) (1,584)
Policy loans (70,509) (75,411) (73,591)
Net proceeds (payments) of short term investments 58,186 (36,482) 9,845
-----------------------------------------
Cash Flows From Investing Activities (85,071) 54,945 68,314
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits 536,370 95,039 114,105
Withdrawals (net of transfers to/from separate accounts) (633,798) (365,578) (387,793)
-----------------------------------------
Cash Flows From Financing Activities (97,428) (270,539) (273,688)
-----------------------------------------
Net increase in Cash 32,331 13,655 27,109
Cash, beginning of year 41,435 27,780 671
-----------------------------------------
CASH, END OF YEAR $ 73,766 $ 41,435 $ 27,780
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Income taxes paid $ 61,760 $ 53,107 $ 56,089
=========================================
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
B-4
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRINCIPLES
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Pruco Life Insurance Company (Pruco Life), a stock life insurance company,
and its subsidiaries (collectively, the Company). Pruco Life is a
wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential), a mutual life insurance company. The Company markets
individual life insurance and deferred annuities primarily through
Prudential's sales force in the United States, and in Taiwan. All
significant intercompany balances and transactions have been eliminated in
consolidation.
B. Basis of Presentation
The Financial Accounting Standards Board (FASB) issued Interpretation No. 40
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises", as amended by Statement of Financial
Accounting Standards (SFAS) No. 120 "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts", effective for fiscal years beginning after
December 15, 1995. Financial statements of mutual life insurance companies,
and their wholly owned stock life insurance subsidiaries, for periods
beginning after December 15, 1995 which are prepared on the basis of
statutory accounting practices will no longer be characterized as in
conformity with generally accepted accounting principles (GAAP). As a
result, the Company has prepared its 1996 consolidated financial statements
in accordance with all applicable GAAP pronouncements. The 1995 and 1994
consolidated financial statements, which were previously prepared on the
statutory basis of accounting, have been restated in accordance with GAAP.
The cumulative effect of adopting GAAP as of January 1, 1994 was an increase
in retained earnings of $378.3 million. See Note 7 for a reconciliation of
the Company's surplus and net income determined in accordance with statutory
accounting practices with equity and net income determined on a GAAP basis.
On January 1, 1995, the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expanded the use of fair
value accounting for those securities that a company does not have positive
intent and ability to hold to maturity. Implementation of this statement
decreased stockholder's equity by $39.8 million net of deferred income tax
benefit of $21.4 million. In 1994 prior to the adoption of SFAS 115, all
fixed maturities were carried at amortized cost.
C. Investments
Fixed Maturities - Securities held to maturity are those that the Company
has the positive intent and ability to hold to maturity and are principally
reported at amortized cost. Amortized cost is adjusted to estimated fair
value for impairments which are deemed to be other than temporary.
Where the Company may not have the positive intent to hold fixed maturities
until maturity, the securities are classified as "Available for Sale." These
securities are reported at market value based principally on their quoted
market prices. The associated unrealized gains and losses, net of income
taxes and deferred policy acquisition costs, are included as a component of
equity or if deemed to be other than temporary, are included as a realized
loss.
Equity Securities consist primarily of common and preferred stocks.
Marketable equity securities are reported at market value based principally
on their quoted market prices. Cost basis of the equity securities is $3.9
million and $5.3 million as of December 31, 1996 and 1995, respectively. The
associated unrealized gains and losses are included as a component of
equity.
Mortgage Loans and Policy Loans are stated primarily at unpaid principal
balances, net of unamortized discounts. Interest income is recognized as net
investment income earned.
B-5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
Investment Real Estate acquired through foreclosure during 1994 was sold in
1996 for $4.5 million.
Other Long Term Investments, which consist of limited partnerships, are
valued at the aggregate net equity in the partnerships. Certain investments
in this category were non-income producing at December 31, 1995. These
investments were $.3 million at December 31, 1995. There were no non-income
producing investments at December 31, 1996 and 1994.
Partnership and joint venture interests in which the Company does not have
control and a majority economic interest are reported on the equity basis of
accounting. Non real estate related interests of $4.5 million and $4.1
million are included in other long term investments, at December 31, 1996
and 1995, respectively. The Company's share of net income from such entities
was $1.4 million, $.3 million, and $1.9 million for the years ended December
31, 1996, 1995, and 1994, respectively, and is reported in net investment
income.
Realized investment gains and losses are reported based on specific
identification of the investments sold.
Short-term investments are fixed maturities that mature within one year, and
are reported at estimated fair value.
D. Revenue Recognition and Related Expenses
Universal life contracts are long duration life insurance contracts that
involve significant mortality and morbidity risk with both fixed and
guaranteed terms. Investment contracts are long duration contracts that do
not subject the insurance enterprise to risks arising from policyholder
mortality or morbidity. Amounts received as payments for these contracts are
reported as deposits to policyholders' account balances. Revenues from these
contracts consist primarily of amounts assessed during the period against
policyholders' account balances for mortality charges, policy administration
fees and surrender charges. Policy benefits and claims that are charged to
expenses include benefit claims incurred in the period in excess of related
policyholders' account balances.
Premiums, policy benefits and claims from traditional life and annuity
policies, generally are recognized in operations when due.
E. Deferred Policy Acquisition Costs
Acquisition costs consist of commissions and other costs which vary with and
are primarily related to the production or acquisition of new business.
Acquisition costs related to universal life products and investment-type
contracts are deferred and amortized in proportion to total estimated gross
profits arising principally from investment results, mortality, expense
margins and surrender charges based on historical and anticipated future
experience. Amortization of deferred policy acquisition costs was $9.3
million, $54.4 million, and $76.0 million for the years ended December 31,
1996, 1995, and 1994, respectively. Deferred policy acquisition costs are
analyzed to determine if they are recoverable from future income, including
investment income. If such costs are determined to be unrecoverable, they
are expensed at the time of determination. The effect on the deferred policy
acquisition asset that would result from realization of unrealized
investment gains (losses) is recognized with an offset to unrealized
investment gains (losses) in consolidated stockholder's equity.
B-6
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
F. Future Policy Benefits and Policyholders' Account Balances
Benefit reserve liabilities for payout annuities such as matured deferred
annuities and supplementary contracts represent the present values of
estimated future benefits payments and related expenses. Present values for
these contracts are computed using interest rates ranging from 6.5% to 11%.
The mortality assumption for these contracts is the 83 IAM tables. Reserves
for supplementary benefits are stated at interest rates that vary from 4% to
6.5% using mortality and morbidity assumptions either from company
experience or various actuarial tables.
When liabilities for future policy benefits plus the present value of
expected future gross deposits are insufficient to provide expected future
policy benefits and expenses, unrecoverable deferred policy acquisition
costs are written off and thereafter, if required, a premium deficiency
reserve is established as a charge to income.
Policyholders' account balances for universal life and investment-type
contracts are equal to the policy account values. The policy account values
represent an accumulation of gross deposits plus interest credited less
expense and mortality charges and withdrawals.
Interest crediting rates on life insurance products range from 3.35% to 7%.
G. Separate Accounts
Separate Accounts represent funds for which investment income and investment
gains and losses accrue directly to, and investment risk is borne by, the
policyholders, with the exception of the Pruco Life Modified Guaranteed
Annuity Account. The Pruco Life Modified Guaranteed Annuity Account is a
non-unitized separate account, which funds the Modified Guaranteed Annuity
Contract and the Market Value Adjustment Annuity Contract. Owners of the
Pruco Life Modified Guaranteed Annuity and the Market Value Adjustment
Annuity Contracts do not participate in the investment gain or loss from
assets relating to such accounts. Such gain or loss is borne, in total, by
the Company.
All Separate Account assets are carried at market value. Deposits to all
Separate Accounts are reported as increases in Separate Account liabilities,
which equal the Separate Account policy account fund values. Charges
assessed against Policyholders' account balances for mortality, policy
administration and surrender charges are included in policy charges and fee
income. Mortality and expense risk charges are applied against the
Policyholders' account balance. The Separate Account assets are legally
segregated and are not subject to claims that arise out of any other
business of the Company.
H. Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
B-7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
2. FIXED MATURITIES
Gross unrealized gains and losses for securities classified as Held to Maturity
and Available for Sale, by major security type, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ - $ - $ - $ -
Foreign government bonds - - - -
Corporate securities 405,731 10,947 576 416,102
Mortgage-backed securities - - - -
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 405,731 $ 10,947 $ 576 $ 416,102
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 32,055 $ 30 $ 174 $ 31,911
Foreign government bonds 90,447 857 205 91,099
Corporate securities 2,087,250 30,365 4,206 2,113,409
Mortgage-backed securities 398 - - 398
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,210,150 $ 31,252 $ 4,585 $ 2,236,817
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ - $ - $ - $ -
Foreign government bonds - - - -
Corporate securities 437,727 18,629 1,805 454,551
Mortgage-backed securities - - - -
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 437,727 $ 18,629 $ 1,805 $ 454,551
- ---------------------------------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(000's) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 324,854 $ 6,830 $ 61 $ 331,623
Foreign government bonds 73,042 3,055 - 76,097
Corporate securities 1,507,248 54,545 2,168 1,559,625
Mortgage-backed securities 169,190 8,717 398 177,509
Other fixed maturities - - - -
- ---------------------------------------------------------------------------------------------------
Total $ 2,074,334 $ 73,147 $ 2,627 $ 2,144,854
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-9
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The amortized cost and estimated fair value of fixed maturities at December 31,
1996, categorized by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may prepay obligations
with or without call or prepayment penalties.
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Held to Maturity
Due in one year or less $ 28,653 $ 28,762
Due after one year through five years 156,013 158,183
Due after five years through ten years 194,765 202,766
Due after ten years 26,300 26,391
Mortgage-backed securities -- --
- ------------------------------------------------------------------------------
Total $ 405,731 $ 416,102
- ------------------------------------------------------------------------------
DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Estimated
Amortized Fair
(000's) Cost Value
- ------------------------------------------------------------------------------
Available For Sale
Due in one year or less $ 130,400 $ 131,301
Due after one year through five years 1,561,854 1,578,979
Due after five years through ten years 398,090 404,920
Due after ten years 119,408 121,219
Mortgage-backed securities 398 398
- ------------------------------------------------------------------------------
Total $2,210,150 $2,236,817
- ------------------------------------------------------------------------------
Proceeds from the sale of fixed maturities during 1996, 1995, and 1994 were $3.8
billion, $1.8 billion, and $2.6 billion, respectively. Gross gains of $28.7
million, $28.8 million, and $16.8 million and gross losses of $19.7 million,
$17.5 million, and $49.8 million were realized on those sales during 1996, 1995,
and 1994, respectively.
B-10
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
3. Net Investment Income YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net investment income consists of:
Gross investment income
Fixed maturities
Held to maturity $ 33,419 $ 33,458 $ 196,909
Available for sale 152,445 160,740 --
Equity securities 44 104 14
Mortgage loans 5,669 7,757 4,041
Investment real estate 613 647 2,146
Policy loans 33,449 29,775 25,692
Short term investments 16,780 15,092 12,676
Other 9,438 3,949 5,075
-------------------------------------------
251,857 251,522 246,553
Investment expenses (4,529) (4,904) (5,421)
===========================================
Net investment income $ 247,328 $ 246,618 $ 241,132
===========================================
4. Investment Gains (Losses)
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Realized investment gains (losses)
Fixed maturities - Available for sale $ 9,036 $ 11,359 $ (38,180)
Equity securities 781 2,020 503
Mortgage loans 1,677 (90) (4,581)
Investment real estate 487 (99) 1,184
Other (1,146) 10 --
-------------------------------------------
Realized investment gains (losses) $ 10,835 $ 13,200 $ (41,074)
===========================================
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------------
(000'S)
<S> <C> <C> <C>
Net unrealized investment gains
(losses), beginning of period $ 30,836 $ (1,349) $ --
Net unrealized investment gains (losses)
Fixed maturities - Available for sale (43,853) 131,712 --
Equity securities 1,403 827 (2,108)
-------------------------------------------
(42,450) 132,539 (2,108)
Deferred income tax benefit (provision) 15,398 (47,714) 759
Deferred policy acquisition costs
(net of deferred income taxes) 8,618 (12,878) --
-------------------------------------------
Net change in unrealized
investment gains (losses) (18,434) 71,947 (1,349)
Adoption of SFAS 115 -- (39,762) --
-------------------------------------------
Net unrealized investment gains
(losses), end of period $ 12,402 $ 30,836 (1,349)
===========================================
</TABLE>
B-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
5. Fair Value Information
The fair value amounts have been determined by the Company using available
information and reasonable valuation methodologies. Considerable judgment is
applied, as necessary, in interpreting data to develop the estimates of fair
value. Accordingly, the estimates presented may not be realized in a current
market exchange. The use of different market assumptions and/or estimation
methodologies could have a material effect on the estimated fair values.
The following methods and assumptions were used in calculating the fair values.
Fixed Maturities - Fair values for fixed maturities, other than private
placement securities, are based on quoted market prices or estimates from
independent pricing services. Fair values for private placement securities are
estimated using a discounted cash flow model which considers the current market
spreads between the U.S. Treasury yield curve and corporate bond yield curve
adjusted for the type of issue, its current quality and its remaining average
life.
Equity Securities - Fair value is based on quoted market prices.
Mortgage Loans - The fair value of the mortgage loan portfolio is primarily
based upon the present value of the scheduled cash flows discounted at the
appropriate U.S. Treasury rate, adjusted for the current market spread for a
similar quality mortgage.
Policy Loans - The estimated fair value is calculated using a discounted cash
flow model based upon current U.S. Treasury rates and historical loan
repayments.
Policyholders' Account Balances - Fair values for policyholders' account
balances are equal to the policy account values.
Short-term Investments - Fair values for short-term investments are based on
quoted market prices or estimates from independent pricing services.
The following table discloses the carrying amounts and estimated fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(000'S)
<S> <C> <C> <C> <C>
Financial Assets:
Fixed maturities:
Held to maturity $ 405,731 $ 416,102 $ 437,727 $ 454,551
Available for sale 2,236,817 2,236,817 2,144,854 2,144,854
Mortgage loans 46,915 46,692 64,464 63,635
Policy loans 639,782 623,218 569,273 577,975
Equity securities 3,748 3,748 4,036 4,036
Short-term investments 169,830 169,830 228,016 228,016
Financial Liabilities:
Policyholders'
account balances $ 2,188,862 $ 2,188,862 $ 2,218,330 $ 2,218,330
</TABLE>
B-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
6. Income Taxes
The Company is a member of a group of affiliated companies which join in filing
a consolidated federal income tax return in addition to separate company state
and local tax returns. The Internal Revenue Code limits the amount of nonlife
insurance losses that may offset life insurance company taxable income.
Companies operating outside the United States are taxed under applicable foreign
statutes.
Pursuant to the tax allocation arrangement, total federal income tax expense is
determined on a separate company basis. Members with losses record tax benefits
to the extent such losses are recognized in the consolidated federal tax
provision. The Company has a net receivable from Prudential of $7.2 million and
$6.4 million as of December 31, 1996 and 1995, respectively.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes.
The components of income taxes are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Current income tax provision:
Federal income tax $ 59,489 $ 65,131 $ 59,641
State and local income tax 703 1,876 3,036
Foreign income tax 4 7 7
-------------------------------------
Total current income tax 60,196 67,014 62,684
Deferred income tax provision
(benefit):
Federal income tax 18,413 12,196 (14,246)
State and local income tax 526 348 (407)
-------------------------------------
Total deferred income tax 18,939 12,544 (14,653)
-------------------------------------
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
The income tax provision is different from the amount computed using the
expected federal income tax rate of 35% for the following reasons:
YEAR ENDED
DECEMBER 31,
1996 1995 1994
-------------------------------------
(000'S)
Expected federal income tax expense $ 79,926 $ 81,271 $ 45,474
State income taxes 1,229 2,224 2,629
Other (2,020) (3,937) (72)
=====================================
Total income tax provision $ 79,135 $ 79,558 $ 48,031
=====================================
B-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
The components of net deferred income taxes payable are as follows:
YEAR ENDED
DECEMBER 31,
1996 1995
------------------------------
(000'S)
Deferred Income Tax Assets
Insurance liabilities $ 38,532 $ 40,732
Other -- --
------------------------------
Total deferred income tax assets $ 38,532 $ 40,732
==============================
Deferred Income Tax Liabilities
Deferred acquisition costs $ 173,785 $ 153,526
Net investment gains 12,502 28,157
Other 1,205 97
------------------------------
Total deferred income tax liabilities 187,492 181,780
------------------------------
Deferred federal income tax payable $ 148,960 $ 141,048
==============================
The Internal Revenue Service (the "Service") has completed examinations of the
consolidated federal income tax returns through 1989. The Service is examining
the years 1990 through 1992. Discussions are being held with the Service with
respect to proposed adjustments. However, management believes there are adequate
defenses against, or sufficient reserves to provide for, such adjustments.
B-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
7. Stockholder's Equity Reconciliation
The reconciliation of statutory net income to GAAP net income, and statutory
surplus to GAAP equity as of December 31, 1996, 1995, and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
(000'S)
<S> <C> <C> <C>
Statutory net income $ 73,847 $ 157,751 $ 52,955
Deferred acquisition costs 48,862 (6,103) (34,124)
Deferred premium 1,295 (743) 1,122
Insurance liabilities 10,211 22,890 31,780
Income taxes (7,780) (27,669) 42,755
Interest maintenance reserve 365 5,480 (24,704)
Separate accounts and other 22,422 1,038 12,111
---------------------------------------------------------
GAAP net income $ 149,222 $ 152,644 $ 81,895
=========================================================
Statutory surplus $ 901,645 $ 829,022 $ 676,087
Investment valuation 26,678 70,776 -
Deferred acquisition costs 633,159 566,976 598,294
Deferred premium (11,859) (13,154) (12,412)
Insurance liabilities (124,781) (153,995) (71,076)
Income taxes (124,823) (128,070) (82,167)
Asset valuation reserve and interest
maintenance reserve 68,733 64,551 23,690
Other 30,229 32,087 (49,052)
---------------------------------------------------------
GAAP stockholder's equity $ 1,398,981 $ 1,268,193 $ 1,083,364
=========================================================
</TABLE>
The New York State Insurance Department ("Department") recognizes only
statutory accounting for determining and reporting the financial condition
and results of operations of an insurance company, for determining its
solvency under the New York Insurance Law, and for determining whether its
financial condition warrants the payment of a dividend to its stockholders.
No consideration is given by the Department to financial statements prepared
in accordance with generally accepted accounting principles in making such
determinations.
B-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
PRUCO LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1996, 1995, AND 1994
8. Related Party Transactions
A. Service Agreements
The Company, Prudential, and Pruco Securities Corporation, an indirect
wholly-owned subsidiary of Prudential, operate under service and lease
agreements whereby services of officers and employees, supplies, use of
equipment and office space are provided. The net cost of these services
allocated to the Company were $102 million, $98 million and $78 million for
the years ended December 31, 1996, 1995, and 1994, respectively.
B. Pension Plans
The Company is a wholly-owned subsidiary of Prudential which sponsors
several defined benefit pension plans that cover substantially all of its
employees. Benefits are generally based on career average earnings and
credited length of service. Prudential's funding policy is to contribute
annually the amount necessary to satisfy the Internal Revenue Service
contribution guidelines.
No pension expense for contributions to the plan was allocated to the
Company in 1996, 1995, or 1994 because the plan was subject to the full
funding limitation under the Internal Revenue Code.
C. Postretirement Life and Health Benefits
Prudential also sponsors certain life insurance and health care benefits for
its retired employees. Substantially all employees may become eligible to
receive a benefit if they retire after age 55 with at least 10 years of
service. Prudential elected to amortize its obligation over twenty years. A
provision for contributions to the postretirement fund is included in the
net cost of services allocated to the Company discussed above for the years
ended December 31, 1996, 1995, and 1994.
D. Reinsurance
The Company currently has three reinsurance agreements in place with
Prudential (the reinsurer). Specifically: reinsurance Group Annuity
Contract, whereby the reinsurer, in consideration for a single premium
payment by the Company, provides reinsurance equal to 100% of all payments
due under the contract, and two yearly renewable term agreements in which
the Company may offer and the reinsurer may accept reinsurance on any life
in excess of the Company's maximum limit of retention. The Company is not
relieved of its primary obligation to the policyholder as a result of these
reinsurance transactions. These agreements had no material effect on net
income for the years ended December 31, 1996, 1995, and 1994.
9. Contingencies
Several actions have been brought against the Company on behalf of those
persons who purchased life insurance policies based on complaints about
sales practices engaged in by Prudential, the Company and agents appointed
by Prudential and the Company. Prudential has agreed to indemnify the
Company for any and all losses resulting from such litigation.
10. Dividends
The Company is subject to Arizona law which limits the amount of dividends
that insurance companies can pay to stockholders. The maximum dividend which
may be paid in any twelve month period without notification or approval is
limited to the lesser of 10% of surplus as of December 31 of the preceding
year or the net gain from operations of the preceding calendar year. Cash
dividends may only be paid out of surplus derived from realized net profits.
Based on these limitations and the Company's surplus position at December
31, 1996, the Company would be permitted a maximum of $48 million in
dividend distribution in 1997, all of which could be paid in cash, without
approval from The State of Arizona Department of Insurance.
B-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of operations, of stockholder's equity
and of cash flows present fairly, in all material respects, the financial
position of Pruco Life Insurance Company and its subsidiaries at December 31,
1996, and the results of their operations and their cash flows for the year in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
- --------------------------
PRICE WATERHOUSE LLP
New York, New York
March 21, 1997
B-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
Pruco Life Insurance Company
Newark, New Jersey
We have audited the accompanying consolidated statement of financial position of
Pruco Life Insurance Company and subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the years ended December 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying financial statements presents fairly, in all
material respects, the consolidated financial position of Pruco Life Insurance
Company and subsidiaries as of December 31, 1995, and the consolidated results
of operations and cash flows for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company has
retroactively adopted all applicable generally accepted accounting principles
relating to stock life insurance subsidiaries of mutual life insurance companies
and has changed, as of January 1, 1995, the method of accounting for fixed
maturity investments.
/s/ DELOITTE & TOUCHE LLP
Parsippany, N.J.
December 19, 1996
B-18
<PAGE>
PRUCO LIFE INSURANCE COMPANY
213 Washington Street
Newark, New Jersey 07102-2992
Telephone: (800) 437-4016, Ext. 46
VUL-1 Ed. 7/97
Cat# 64M9743
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
Pruco Life Insurance Company represents that the fees and charges deducted under
the Variable Universal Life Insurance Contracts registered by this registration
statement, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
depositor.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance program, purchased by Prudential from Aetna Casualty & Surety Company,
CNA Insurance Companies, Lloyds of London, Great American Insurance Company,
Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd.,
A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides reimbursement for "Loss" (as defined in the
policies) which the Company pays as indemnification to its directors or officers
resulting from any claim for any actual or alleged act, error, misstatement,
misleading statement, omission, or breach of duty by persons in the discharge of
their duties in their capacities as directors or officers of Prudential, any of
its subsidiaries, or certain investment companies affiliated with Prudential.
Coverage is also provided to the individual directors or officers for such Loss,
for which they shall not be indemnified. Loss essentially is the legal liability
on claims against a director or officer, including adjudicated damages,
settlements and reasonable and necessary legal fees and expenses incurred in
defense of adjudicatory proceedings and appeals therefrom. Loss does not include
punitive or exemplary damages or the multiplied portion of any multiplied damage
award, criminal or civil fines or penalties imposed by law, taxes or wages, or
matters which are uninsurable under the law pursuant to which the policies are
construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal, dishonest or fraudulent acts or omissions or the willful violation
of any law by a director or officer, (2) claims based on or attributable to
directors or officers gaining personal profit or advantage to which they were
not legally entitled, and (3) claims arising from actual or alleged performance
of, or failure to perform, services as, or in any capacity similar to, an
investment adviser, investment banker, underwriter, broker or dealer, as those
terms are defined in the Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940,
any rules or regulations thereunder, or any similar federal, state or local
statute, rule or regulation.
The limit of coverage under the program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of Prudential, can
be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The relevant
provisions of Arizona law, Arizona being the state of organization of Pruco
Life, can be found in Section 10-005 of the Arizona Statutes Annotated. The text
of Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) of Post-Effective
Amendment No. 1 to Form S-6, Registration No. 33-61079, filed April 25, 1996, on
behalf of The Prudential Variable Appreciable Account. The text of Pruco Life's
by-laws, Article VIII, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 1.A.(6)(b) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
II-1
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of 68 pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. Price Waterhouse LLP
2. Deloitte & Touche LLP
3. Clifford E. Kirsch, Esq.
4. Ching-Meei Chang, MAAA, FSA
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
A. (1) (a) Resolution of Board of Directors of Pruco Life
Insurance Company establishing the Pruco Life
Variable Appreciable Account. (Note 3)
(b) Amendment of Separate Account Resolution. (Note 1)
(2) Not Applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Pruco Securities
Corporation and Pruco Life Insurance Company.
(Note 3)
(b) Proposed form of Agreement between Pruco Securities
Corporation and independent brokers with respect to
the Sale of the Contracts. (Note 3)
(c) Schedules of Sales Commissions. (Note 5)
(d) Participation Agreements.
(i) AIM Variable Insurance Funds, Inc., AIM V.I.
Value Fund. (Note 1)
(ii) American Century Variable Portfolios, Inc., VP
Value Portfolio. (Note 1)
(iii) Janus Aspen Series, Growth Portfolio. (Note 1)
(iv) MFS Variable Insurance Trust, Emerging Growth
Series. (Note 1)
(v) T. Rowe Price International Series, Inc.,
International Stock Portfolio. (Note 1)
(4) Not Applicable.
(5) Variable Universal Life Insurance Contract: (Note 3)
(6) (a) Articles of Incorporation of Pruco Life Insurance
Company, as amended October 19, 1993. (Note 3)
(b) By-laws of Pruco Life Insurance Company, as amended
June 18, 1996. (Note 7)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) (a) Application Form. (Note 3)
(b) Supplement to the Application. (Note 2)
(11) Form of Notice of Withdrawal Right. (Note 5)
(12) Memorandum describing Prudential's issuance, transfer,
and redemption procedures for the Contracts pursuant to
Rule 6e-3(T)(b)(12)(iii) and method of computing
adjustments in payments and cash surrender values upon
conversion to fixed-benefit policies pursuant to Rule
6e-3(T)(b)(13)(v)(B). (Note 1)
II-3
<PAGE>
(13) Available Contract Riders and Endorsements:
(a) Rider for Payment of Premium Benefit Upon Insured's
Total Disability. (Note 3)
(b) 10 Year Level Premium Term Rider on Insured. (Note 5)
(c) 10 Year Level Premium Term Rider on Spouse. (Note 5)
(d) Annually Renewable Term Rider on Insured. (Note 5)
(e) Children's Rider. (Note 5)
(f) Living Needs Benefit Rider
(i) for use in Florida. (Note 3)
(ii) for use in all approved jurisdictions except
Florida. (Note 3)
2. See Exhibit 1.A.(5).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the legality of
the securities being registered. (Note 1)
4. None.
5. Not Applicable.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to actuarial
matters pertaining to the securities being registered. (Note 1)
7. Powers of Attorney:
(a) William M. Bethke, Ira J. Kleinman, Mendel A. Melzer, Esther H.
Milnes, I. Edward Price (Note 6)
(b) Linda S. Dougherty (Note 7)
(c) Kiyofumi Sakaguchi (Note 4)
(d) James J. Avery, Jr. (Note 1)
27. Financial Data Schedule. (Note 1)
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Form S-6, Registration
No. 33-61079, filed July 17, 1995 on behalf of The Prudential
Variable Appreciable Account.
(Note 3) Incorporated by reference to Registrant's Form S-6, filed July
2, 1996.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 8 to
Form S-6, Registration No. 33-49994, filed on April 28, 1997 on
behalf of the Pruco Life PRUvider Variable Appreciable Account.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Form S-6, filed November 25, 1996 on behalf of the
Pruco Life Variable Appreciable Account.
(Note 6) Incorporated by reference to Form 10-K, Registration
No. 33-08698, filed March 31, 1997 on behalf of the Pruco Life
Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Post-Effective Amendment No. 3 to
Form S-1, Registration No. 33-86780, filed April 9, 1997 on
behalf of the Pruco Life Variable Contract Real Property
Account.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, the
Pruco Life Variable Appreciable Account, certifies that this Amendment is filed
solely for one or more of the purposes specified in Rule 485(b)(1) under the
Securities Act of 1933 and that no material event requiring disclosure in the
prospectus, other than one listed in Rule 485(b)(1), has occurred since the
effective date of the most recent Post-Effective Amendment to the Registration
Statement which included a prospectus, and has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 25th day of June, 1997.
(Seal) THE PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT
(Registrant)
By: PRUCO LIFE INSURANCE COMPANY
(Depositor)
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
---------------------------- ----------------------------
Thomas C. Castano Esther H. Milnes
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 25th day of June, 1997.
SIGNATURE AND TITLE
-------------------
/s/ *
- ----------------------------------------
Esther H. Milnes
President and Director
/s/ *
- ----------------------------------------
Linda S. Dougherty
Chief Accounting Officer and Comptroller
/s/ *
- ----------------------------------------
James J. Avery, Jr.
Director
/s/ *
- ----------------------------------------
William M. Bethke
Director
/s/ * *By: /s/ THOMAS C. CASTANO
- ---------------------------------------- ----------------------------
Ira J. Kleinman Thomas C. Castano
Director (Attorney-in-Fact)
/s/ *
- ----------------------------------------
Mendel A. Melzer
Director
/s/ *
- ----------------------------------------
I. Edward Price
Director
/s/ *
- ----------------------------------------
Kiyofumi Sakaguchi
Director
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
Consent of Price Waterhouse LLP, independent accountants. Page II-7
Consent of Deloitte & Touche LLP, independent auditors. Page II-8
1.A.(1)(b) Amendment of Separate Account Resolution. Page II-9
1.A.(3)(d)(i) Participation Agreement with AIM Variable Insurance Funds, Page II-11
Inc., AIM V.I. Value Fund.
1.A.(3)(d)(ii) Participation Agreement with American Century Variable Page II-43
Portfolios, Inc., VP Value Portfolio.
1.A.(3)(d)(iii) Participation Agreement with Janus Aspen Series, Growth Page II-56
Portfolio.
1.A.(3)(d)(iv) Participation Agreement with MFS Variable Insurance Trust, Page II-73
Emerging Growth Series.
1.A.(3)(d)(v) Participation Agreement with T. Rowe Price International Page II-91
Series, Inc., International Stock Portfolio.
1.A.(12) Memorandum describing Prudential's issuance, transfer, and Page II-115
redemption procedures for the Contracts pursuant to Rule
6e-3(T)(b)(12)(iii) and method of computing adjustments in
payments and cash surrender values upon conversion to
fixed-benefit policies pursuant to Rule 6e-3(T)(b)(13)(v)(B).
3. Opinion and Consent of Clifford E. Kirsch, Esq. as to the Page II-125
legality of the securities being registered.
6. Opinion and Consent of Ching-Meei Chang, MAAA, FSA, as to Page II-126
actuarial matters pertaining to the securities being
registered.
7. Power of Attorney Page II-127
27. Financial Data Schedule. Page II-129
</TABLE>
II-6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 2 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated March 31, 1997, relating to the
financial statements of Pruco Life Variable Appreciable Account, which appears
in such Prospectus.
We also consent to the use in the Prospectus constituting part of this
Registration Statement of our report dated March 21, 1997, relating to the
consolidated financial statements of Pruco Life Insurance Company and
Subsidiaries, which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in the
Prospectus.
/s/ PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 24, 1997
II-7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to Registration
Statement No. 333-07451 on Form S-6 of Pruco Life Variable Appreciable Account
of Pruco Life Insurance Company of our report dated February 15, 1996, relating
to the financial statements of the Variable Universal Life Subaccounts of Pruco
Life Variable Appreciable Account, and of our report dated December 19, 1996,
relating to the financial statements of Pruco Life Insurance Company and
subsidiaries appearing in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
June 25, 1997
II-8
Exhibit 1.A.(1)(b)
96-53
PRUCO LIFE INSURANCE COMPANY
Action by Executive Committee of the
Board of Directors by Unanimous Consent
Pursuant to Section 4.12 of Article IV of the By-laws of Pruco Life
Insurance Company, an Arizona corporation, and pursuant to Section 10-044 of the
Arizona General Corporation Law, the undersigned, being or acting for all of the
regular members of the Executive Committee of the Board of Directors of such
Company, hereby consent to and adopt the following resolutions:
R- 821 Amendment of Separate Account Resolution
----------------------------------------
RESOLVED, that resolution R-263 establishing the "Pruco Life Variable
Appreciable Account" (hereinafter - "Account") is hereby amended, in part, to
provide that the Company shall receive and hold in the Account amounts arising
from (i) purchase payments received pursuant to certain Variable Appreciable
Life Insurance Contracts and/or other flexible premium variable life insurance
contracts ("Variable Contracts") sold as part of its variable life insurance
program ("Program") and (ii) such assets of the Company as the proper officers
of the Company may deem prudent and appropriate to have invested in the same
manner as the assets applicable to its reserve liability under the Variable
Contracts and lodged in the Account, and such amounts and the dividends,
interest and gains produced thereby shall be invested, subject to the rights of
the holders of such Variable contracts, (i) in shares of The Prudential Series
Fund, Inc., an open-end diversified management investment company of the series
type, at the net asset value of such shares at the time of acquisition and (ii)
in shares of such other open-end diversified management investment companies as
may be determined from time to time by the proper officers of the Company, at
the net asset value of such shares at the time of acquisition.
II-9
<PAGE>
Dated: November 25, 1996
/s/
-----------------------------
Esther H. Milnes
/s/
-----------------------------
I. Edward Price
/s/
-----------------------------
William F. Yelverton
II-10
EXHIBIT 1.A.(3)(d)(i)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
PRUCO LIFE INSURANCE COMPANY
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
PRUCO SECURITIES CORPORATION
II-11
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 1. Available Funds .................................................................................. 2
1.1 Availability .............................................................................. 2
1.2 Addition, Deletion or Modification of Funds ............................................... 2
1.3 No Sales to the General Public ............................................................ 2
Section 2. Processing Transactions .......................................................................... 3
2.1 Timely Pricing and Orders ................................................................. 3
2.2 Timely Payments ........................................................................... 3
2.3 Applicable Price .......................................................................... 4
2.4 Dividends and Distributions ............................................................... 4
2.5 Book Entry ................................................................................ 4
Section 3. Costs and Expenses ............................................................................... 4
3.1 General ................................................................................... 4
3.2 Registration .............................................................................. 4
3.3 Other (Non-Sales-Related) ................................................................. 5
3.4 Other (Sales-Related) ..................................................................... 5
3.5 Parties To Cooperate ...................................................................... 5
Section 4. Legal Compliance ................................................................................. 6
4.1 Tax Laws .................................................................................. 6
4.2 Insurance and Certain Other Laws .......................................................... 8
4.3 Securities Laws ........................................................................... 8
4.4 Notice of Certain Proceedings and Other Circumstances ..................................... 9
4.5 Prudential and the Underwriter To Provide Documents: Information About AVIF ............... 10
4.6 AVIF or AIM To Provide Documents: Information About Prudential and the Underwriter ........ 11
Section 5. Mixed and Shared Funding ......................................................................... 12
5.1 General ................................................................................... 12
5.2 Disinterested Directors ................................................................... 12
5.3 Monitoring for Material Irreconcilable Conflicts .......................................... 13
5.4 Conflict Remedies ......................................................................... 13
5.5 Notice to Prudential ...................................................................... 15
5.6 Information Requested by Board of Directors ............................................... 15
5.7 Compliance with SEC Rules ................................................................. 15
5.8 Other Requirements ........................................................................ 15
</TABLE>
i
II-12
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C>
Section 6. Termination ...................................................................................... 15
6.1 Events of Termination ..................................................................... 15
6.2 Notice Requirement for Termination ........................................................ 17
6.3 Funds To Remain Available ................................................................. 17
6.4 Survival of Warranties and Indemnifications ............................................... 17
6.5 Continuance of Agreement for Certain Purposes ............................................. 18
Section 7. Parties To Cooperate Respecting Termination ..................................................... 18
Section 8. Assignment ...................................................................................... 18
Section 9. Notices ......................................................................................... 18
Section 10. Voting Procedures ............................................................................... 19
Section 11. Foreign Tax Credits ............................................................................. 20
Section 12. Indemnification ................................................................................. 20
12.1 Of AVIF and AIM by Prudential and the Underwriter ......................................... 20
12.2 Of Prudential and the Underwriter by AVIF and AIM ......................................... 22
12.3 Effect of Notice .......................................................................... 24
12.4 Successors ................................................................................ 25
Section 13. Applicable Law ................................................................................ 25
Section 14. Execution in Counterparts ..................................................................... 25
Section 15. Severability .................................................................................. 25
Section 16. Rights Cumulative ............................................................................. 25
Section 17. Headings ...................................................................................... 25
</TABLE>
ii
II-13
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ______ day of ____________,
1996 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM");
Pruco Life Insurance Company ("Prudential"), an Arizona life insurance company,
on behalf of itself and each of its segregated asset accounts listed in Schedule
A hereto, as the parties hereto may amend from time to time (each, an "Account,"
and collectively, the "Accounts"); and Pruco Securities Corporation, a New
Jersey corporation and the principal underwriter of the Contracts and Policies
referred to below ("Underwriter") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts;
and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 (the "1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, AIM currently serves as the distributor for the Shares; and
WHEREAS, Prudential will be the issuer of certain variable annuity
contracts ("Contracts") and/or variable life insurance policies ("Policies") as
set forth on Schedule A hereto, as the Parties hereto may amend from time to
time, which Contracts and Policies (hereinafter collectively, the "Policies"),
if required by applicable law, will be registered under the 1933 Act; and
WHEREAS, Prudential will fund the Policies through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
1
II-14
<PAGE>
WHEREAS, Prudential will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Prudential intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Policies; and
WHEREAS, the Underwriter is a broker-dealer registered with the SEC under
the 1934 Act and a member in good standing of the NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to Prudential for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that Shares of each Fund have been and will be
sold only to those entities listed under Section 817(h)(4) of the Code and the
regulations thereunder, as such Code Section and the regulations may be amended
from time to time.
2
II-15
<PAGE>
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
Prudential with the net asset value per Share for each Fund by 5:30 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, and (ii) AVIF
calculates the Fund's net asset value.
(b) Prudential will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. Prudential will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to Prudential in the event that AVIF is unable to
meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to Prudential.
(c) Each order to purchase or redeem Shares will separately describe the
amount of Shares of each Fund to be purchased, redeemed or exchanged and will
not be netted; provided, however, with respect to payment of the purchase price
by Prudential and of redemption proceeds by AVIF, Prudential and AVIF shall net
purchase and redemption orders with respect to each Fund and shall transmit one
(1) net payment per Fund in accordance with Section 2.2, below. Each order to
purchase or redeem Shares shall also specify whether the order results from
purchase payments, surrenders, partial withdrawals, routine withdrawals of
charges, or requests for other transactions under Policies (collectively,
"Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value
information, Prudential shall be entitled to an adjustment to the number of
Shares purchased or redeemed to reflect the correct net asset value per Share.
Any material error in the calculation or reporting of net asset value per Share,
dividend or capital gain information shall be reported promptly upon discovery
to Prudential.
2.2 TIMELY PAYMENTS.
Prudential will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Prudential by 1:00 p.m. Central Time on
the same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable Prudential to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
3
II-16
<PAGE>
2.3 APPLICABLE PRICE.
(a) Share purchase and redemption orders that result from Policy
transactions and that Prudential receives prior to the close of regular trading
on the New York Stock Exchange on a Business Day will be executed at the net
asset values of the appropriate Funds next computed after receipt by AVIF or its
designated agent of the orders. For purposes of this Section 2.3(a), the
Underwriter shall be the designated agent of AVIF for receipt of orders relating
to Policy transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided, that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Prudential will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice promptly to Prudential of any income dividends or
capital gain distributions payable on the Shares of any Fund. Prudential hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
Prudential otherwise notifies AVIF in writing, it being agreed by the Parties
that the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same Business Day. Prudential reserves the right to
revoke this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to Prudential. Shares ordered from AVIF will be
recorded in an appropriate title for Prudential, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management investment
company under the 1940 Act and registering its Shares under the 1933 Act, and
keeping such registrations
4
II-17
<PAGE>
current and effective; including, without limitation, the preparation of and
filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF
and its Shares and payment of all applicable registration or filing fees with
respect to any of the foregoing.
(b) Prudential will bear the cost of registering, to the extent required,
each Account as a unit investment trust under the 1940 Act and registering units
of interest under the Policies under the 1933 Act and keeping such registrations
current and effective; including, without limitation, the preparation and filing
with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account
and its units of interest and payment of all applicable registration or filing
fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of preparing,
filing with the SEC and setting for printing AVIF's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material
and other shareholder communications.
(b) Prudential will bear the costs of preparing, filing with the SEC and
setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Policy owners, annuitants or
participants under the Policies (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
(c) Prudential or the Underwriter will print in quantity and deliver to
existing Participants the documents described in Section 3.3(b) above and the
documents provided by AVIF in camera ready or computer diskette form pursuant to
Section 4.6(b) hereof. The costs of printing in quantity and delivering to
existing Participants such documents will be borne by Prudential.
3.4 OTHER (SALES-RELATED).
The Underwriter will bear the expenses of distributing Fund Shares and the
Policies. These expenses would include by way of illustration, but are not
limited to, the costs of printing and distributing to offerees the AVIF
Prospectus and periodic reports of AVIF. These costs would also include the
costs of preparing, printing, and distributing sales literature and advertising
relating to the Funds, as well as filing such materials with, and obtaining
approval from, the SEC, NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
5
II-18
<PAGE>
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified as a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and represents that it will qualify and
maintain qualification of each Fund as a RIC. AVIF will notify Prudential
immediately upon having a reasonable basis for believing that a Fund has ceased
to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will comply and maintain each Fund's compliance
with the diversification requirements set forth in Section 817(h) of the Code
and Section 1.817-5(b) of the regulations under the Code. AVIF will notify
Prudential immediately upon having a reasonable basis for believing that a Fund
has ceased to so comply or that a Fund might not so comply in the future.
(c) Prudential agrees that if the Internal Revenue Service ("IRS") asserts
in writing in connection with any governmental audit or review of Prudential or,
to Prudential's knowledge, of any Participant, that any Fund has failed to
comply with the diversification requirements of Section 817(h) of the Code or
Prudential otherwise becomes aware of any facts that could give rise to any
claim against AVIF or its affiliates as a result of such a failure or alleged
failure:
(i) Prudential shall promptly notify AVIF of such assertion or
potential claim;
(ii) Prudential shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged failure;
(iii) Prudential shall use its best efforts to minimize any liability
of AVIF or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such failure was
inadvertent;
(iv) Prudential shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any Participant or any
other claimant regarding any claims that could give rise to liability to
AVIF or its affiliates as a result of such a failure or alleged failure;
(v) any written materials to be submitted by Prudential to the IRS,
any Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to Treasury Regulations
Section 1.817-5(a)(2)), (a) shall be provided by Prudential to AVIF
(together with any supporting information or analysis) at least
6
II-l9
<PAGE>
ten (10) business days' prior to the day on which such proposed materials
are to be submitted, and (b) shall not be submitted by Prudential to any
such person without the express written consent of AVIF which shall not be
unreasonably withheld;
(vi) Prudential shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by permitting AVIF and
its accounting and legal advisors to review the relevant books and records
of Prudential) in order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding clause or its
assessment of the validity or amount of any claim against its arising from
such a failure or alleged failure;
(vii) Prudential shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its affiliates
(a) compromise or settle any claim, (b) accept any adjustment on audit, or
(c) forego any allowable administrative or judicial appeals, without the
express written consent of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that Prudential shall not be required,
after exhausting all administrative penalties, to appeal any adverse
judicial decision unless AVIF or its affiliates shall have provided an
opinion of independent counsel to the effect that a reasonable basis exists
for taking such appeal; and provided further that the costs of any such
appeal shall be borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if Prudential fails to comply with any of
the foregoing clauses (i) through (vii), and such failure could be shown to
have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, Prudential
may, in its discretion, authorize AVIF or its affiliates to act in the name of
Prudential in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided that in no event shall Prudential have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) Prudential represents and warrants that the Policies currently are and
will be treated as annuity, endowment, or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment;
Prudential will notify AVIF immediately upon having a reasonable basis for
believing that any of the Policies have ceased to be so treated or that they
might not be so treated in the future.
7
II-20
<PAGE>
(e) Prudential represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. Prudential will continue to meet such definitional requirements, and
it will notify AVIF immediately upon having a reasonable basis for believing
that such requirements have ceased to be met or that they might not be met in
the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF and AIM will use their best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by Prudential.
(b) Prudential represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Arizona and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Arizona Insurance Code and the
regulations thereunder, and (iii) the Policies comply in all material respects
with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full power, authority and right to execute, deliver and
perform its duties and comply with the its obligations under this Agreement.
(e) The Underwriter represents and warrants that it is a New Jersey
corporation duly organized, validity existing, and in good standing under the
laws of the State of New Jersey and has full power, authority, and legal right
to execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
4.3 SECURITIES LAWS.
(a) Prudential and the Underwriter represent and warrant that (i) interests
in each Account pursuant to the Policies will be registered under the 1933 Act
to the extent required by the 1933 Act, (ii) the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Arizona law, (iii) each Account is and will remain registered under the
1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's
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1933 Act registration statement relating to the Policies, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, (vi) Prudential will
amend the registration statement for its Policies under the 1933 Act and for its
Accounts under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the extent required by
the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in accordance with
the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF and/or AIM will immediately notify Prudential of (i) the issuance
by any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to AVIF's registration statement under the 1933
Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such
registration statement or AVIF's Prospectus, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law, or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by Prudential. AVIF will make every reasonable
effort to prevent the issuance, with respect to any Fund, of any such stop
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(b) Prudential and the Underwriter will immediately notify AVIF of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Policies or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus, (iii) the initiation of any proceedings for
that purpose or for any
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other purpose relating to the registration or offering of each Account's
interests pursuant to the Policies, or (iv) any other action or circumstances
that may prevent the lawful offer or sale of said interests in any state or
jurisdiction, including, without limitation, any circumstances in which said
interests are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law. Prudential will make every
reasonable effort to prevent the issuance of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
4.5 PRUDENTIAL AND THE UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION ABOUT
AVIF.
(a) Prudential or the Underwriter will provide to AVIF or its designated
agent at least one (1) complete copy of all SEC registration statements, Account
Prospectuses, reports, any preliminary and final voting instruction solicitation
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to each Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) The Underwriter will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
business days' prior to its use or such shorter period as the Parties hereto
may, from time to time, agree upon. No such material shall be used if AVIF or
its designated agent objects to such use within five (5) business days after
receipt of such material or such shorter period as the Parties hereto may, from
time to time, agree upon. AVIF hereby designates its investment adviser as the
entity to receive such sales literature or other promotional material, until
such time as AVIF appoints another designated agent by giving notice to
Prudential in the manner required by Section 9 hereof.
(c) Neither Prudential, the Underwriter, nor any of their respective
affiliates will give any information or make any representations or statements
on behalf of or concerning AVIF or its affiliates in connection with the sale of
the Policies other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(ii) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) Prudential and the Underwriter shall adopt and implement procedures
reasonably designed to ensure that information concerning AVIF and its
affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expense
relating to the improper use of such broker only materials.
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4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT PRUDENTIAL AND THE
UNDERWRITER.
(a) AVIF will provide to Prudential at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to Prudential or the Underwriter camera ready or
computer diskette copies of all AVIF Prospectuses, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Policy value to a Fund. AVIF will provide
such copies to Prudential or the Underwriter in a timely manner so as to enable
Prudential or the Underwriter, as the case may be, to print and distribute such
materials within the time required by law to be furnished to Participants.
(c) AIM will provide to Prudential or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which Prudential, the Underwriter or any of their respective affiliates is
named, or that refers to the Policies, at least five (5) business days' prior to
its use or such shorter period as the Parties hereto may, from time to time,
agree upon. No such material shall be used if Prudential or its designated agent
objects to such use within five (5) business days alter receipt of such material
or such shorter period as the Parties hereto may, from time to time, agree upon.
Prudential shall receive all such sales literature or other promotional
material, until such time as it appoints a designated agent by giving notice to
AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning Prudential,
the Underwriter, each Account, or the Policies other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
reports or voting instruction materials for each Account; or (ii) in sales
literature or other promotional material approved by Prudential or its
affiliates, except with the express written permission of Prudential.
(e) AIM shall adopt and implement procedures reasonably designed to ensure
that information concerning Prudential, the Underwriter, and their respective
affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither
Prudential, the Underwriter, nor any of their respective affiliates shall be
liable for any losses, damages or expense relating to the improper use of such
broker only materials.
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4.7 DEFINITION OF SALES LITERATURE OR OTHER PROMOTIONAL MATERIAL.
For purposes of this Section 4.7, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, video tape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circular, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published articles), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, prospectuses, statements of additional
information, shareholder reports, and proxy materials and any other material
constituting sales literature of advertising under NASD Rules, the 1940 Act or
the 1933 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
AVIF has received an order from the SEC exempting it from certain
provisions of the 1940 Act and rules thereunder so that AVIF may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable life insurance contracts, separate accounts
of insurance companies unaffiliated with Prudential, and trustees of qualified
pension and retirement plans (collectively, "Mixed and Shared Funding"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply, if and only if AVIF continues to
implement Mixed and Shared Funding, pursuant to such an exemptive order or
otherwise. AVIF hereby notifies Prudential that it may be appropriate to include
in the prospectus pursuant to which a Policy is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board, (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies, or (c) for
such longer period as the SEC may prescribe by order upon application.
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5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). Prudential agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract
and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the voting
instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting instructions
of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, Prudential will assist the Board
of Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by
Prudential to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Prudential will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority
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<PAGE>
of the Disinterested Directors), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps may include, but are
not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different investment
medium, including another Fund of AVIF, or submitting the question whether
such segregation should be implemented to a vote of all affected
Participants and, as appropriate, segregating the assets of any particular
group (e.g., annuity Participants, life insurance Participants or all
Participants) that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of Prudential's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Prudential
may be required, at AVIF's election, to withdraw each Account's investment in
AVIF or any Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six (6) months after AVIF
gives notice to Prudential that this provision is being implemented, and until
such withdrawal AVIF shall continue to accept and implement orders by Prudential
for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to Prudential conflicts with the
majority of other state regulators, then Prudential will withdraw each Account's
investment in AVIF within six (6) months after AVIF's Board of Directors informs
Prudential that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal AVIF shall continue to accept
and implement orders by Prudential for the purchase and redemption of Shares of
AVIF.
(d) Prudential agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Policies.
Prudential will not be required by the terms hereof to establish a new funding
medium for any Policies if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
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<PAGE>
5.5 NOTICE TO PRUDENTIAL.
AVIF will promptly make known in writing to Prudential the Board of
Directors, determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Prudential and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or any
exemptive application filed with the SEC to permit Mixed and Shared Funding, and
said reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of AVIF or Prudential upon the approval by (i) a majority
of the Disinterested Directors, or (ii) a majority vote of the Shares of the
affected Fund that are held in the
15
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<PAGE>
corresponding Subaccount of an Account (pursuant to the procedures set forth in
Section 10 of this Agreement for voting Shares in accordance with Participant
instructions); provided, however, that the approvals described in clauses (i)
and (ii) above shall not be required if (1) the aggregate account value under
the Policies is less than one million dollars ($1,000,000,000) at the date the
notice of termination is delivered, and (2) thirty-six (36) full calendar months
have expired following the date the first Policy invested in any Fund; or
(b) at the option of AVIF or AIM upon institution of formal proceedings
against Prudential or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding Prudential's obligations under
this Agreement or related to the sale of the Policies, the operation of each
Account, or the purchase of Shares, if, in each case, AVIF or AIM reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of Prudential upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, Prudential
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Prudential, or the Subaccount corresponding to the Fund
with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are
not registered and, in all material respects, issued and sold in accordance with
any applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Policies issued or to be issued
by Prudential; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of Prudential if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
Prudential reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Prudential if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if Prudential
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued by Prudential cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account
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<PAGE>
under the Policies are not registered, where required, and, in all material
respects, are not issued or sold in accordance with any applicable federal or
state law; or
(i) upon another Party's material breach of any provision of this
Agreement; or
(j) at the option of either party upon six (6) months' advance written
notice.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is required by law or is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is required by law or is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible after the terminating Party learns of
the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Except (a) as necessary to implement Participant-initiated transactions,
(b) as required by state insurance laws or regulations, (c) as required pursuant
to Section 5 of this Agreement, or (d) with respect to any Fund as to which this
Agreement has terminated pursuant to Section 6.1 hereof, Prudential shall not
(i) redeem AVIF Shares attributable to the Policies (as opposed to AVIF Shares
attributable to Prudential's assets held in each Account), or (ii) prevent
Participants from allocating payments to or transferring amounts from a Fund
that was otherwise available under the Policies, until six (6) months after
Prudential shall have notified AVIF of its intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
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<PAGE>
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the date as of which an
Account owns no Shares of the affected Fund.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Policies in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
PRUCO LIFE INSURANCE COMPANY
751 Broad Street
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
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<PAGE>
PRUCO SECURITIES CORPORATION
751 Broad Street
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
Prudential will distribute all proxy material furnished by AVIF to Participants
to whom pass-through voting privileges are required to be extended and will
solicit voting instructions from Participants. Prudential will vote Shares in
accordance with timely instructions received from Participants. Prudential will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so long
as and to the extent that the SEC continues to interpret the 1940 Act to require
pass through voting privileges for Participants. Neither Prudential nor any of
its affiliates will in any way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Participants. Prudential reserves the right to vote shares held in any Account
in its own right, to the extent permitted by law. Prudential shall be
responsible for assuring that each of its Accounts holding Shares calculates
voting privileges in a manner consistent with that of other Participating
Insurance Companies or in the manner required by any Mixed and Shared Funding
exemptive order that AVIF may obtain in the future. AVIF will notify Prudential
of any changes of interpretations or amendments to any Mixed and Shared Funding
exemptive order it obtains in the future.
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<PAGE>
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with Prudential concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY PRUDENTIAL AND THE UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
Prudential and the Underwriter each agree to indemnify and hold harmless AVIF,
its affiliates (including AIM), and each of their respective directors and
officers, and each person, if any, who controls AVIF or its affiliates
(including AIM) within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of Prudential) or actions in respect thereof (including, to
the extent reasonable, legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions are
related to the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, the Policies, or sales
literature or advertising for the Policies (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to Prudential or the Underwriter by or on behalf of AVIF for use
in any Account's 1933 Act registration statement, any Account Prospectus,
the Policies, or sales literature or advertising or otherwise for use in
connection with the sale of Policies or Shares (or any amendment or
supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in
AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of Prudential or
the Underwriter and on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of Prudential, the Underwriter or
their respective affiliates or persons under their control (including,
without
20
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<PAGE>
limitation, their employees and "Associated Persons," as that term is
defined in paragraph (m) of Article I of the NASD's By-Laws), in connection
with the sale or distribution of the Policies or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or advertising of
AVIF, or any amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or AIM by or on behalf of
Prudential, the Underwriter or their respective affiliates for use in
AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature
or advertising of AVIF, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by Prudential or the Underwriter
to perform the obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any material breach
of any representation and/or warranty made by Prudential or the Underwriter
in this Agreement or arise out of or result from any other material breach
of this Agreement by Prudential or the Underwriter; or
(v) arise as a result of failure by the Policies issued by Prudential
to qualify as life insurance, endowment, or annuity contracts under the
Code, otherwise than by reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Neither Prudential nor the Underwriter shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither Prudential nor the Underwriter shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
or AIM shall have notified Prudential or the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify Prudential or
the Underwriter of any such action shall not relieve Prudential or the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.1. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, Prudential or the Underwriter shall be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof, with counsel approved by the Indemnified
21
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<PAGE>
Party named in the action, which approval shall not be unreasonably withheld.
After notice from Prudential or the Underwriter to such Indemnified Party of its
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Prudential and shall bear the fees and expenses of any additional
counsel retained by it, and Prudential will not be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently incurred
by such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
12.2 OF PRUDENTIAL AND THE UNDERWRITER BV AVIF AND AIM.
(a) Except to the extent provided in Sections 4.1(c)(vii), 12.2(d), 12.2(e)
and 12.2(f), below, AVIF and AIM each agree to indemnify and hold harmless
Prudential, the Underwriter, their respective affiliates, and each of their
respective directors and officers, and each person, if any, who controls
Prudential, the Underwriter, or their respective affiliates within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 12.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
AVIF and AIM) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law, or otherwise,
insofar as such losses, claims, damages, liabilities or actions are related to
the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus or sales literature or advertising
of AVIF (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF or its affiliates by
or on behalf of Prudential or its affiliates for use in AVIF's 1933 Act
registration statement, AVIF Prospectus, or in sales literature or
advertising (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in any
Account's 1933 Act registration statement, any Account Prospectus, sales
literature or advertising for the Policies, or any amendment or supplement
to any of the foregoing, not supplied for use therein by or on behalf of
AVIF or its affiliates and on which such persons have reasonably relied) or
the negligent, illegal or fraudulent conduct of AVIF, its affiliates or
persons under their control (including, without limitation, their employees
and "Associated Persons"), in connection with the sale or distribution of
AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's 1933 Act
registration
22
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<PAGE>
statement, any Account Prospectus, sales literature or advertising covering
the Policies, or any amendment or supplement to any of the foregoing, or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished to Prudential, the Underwriter, or
their respective affiliates by or on behalf of AVIF or AIM for use in any
Account's 1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Policies, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF or AIM to perform the
obligations, provide the services and furnish the materials required of it
under the terms of this Agreement, or any material breach of any
representation and/or warranty made by AVIF or AIM in this Agreement or
arise out of or result from any other material breach of this Agreement by
AVIF or AIM.
(b) Except to the extent provided in Sections 4.1(c)(vii), 12.2(d), 12.2(e)
and 12.2(f) hereof, AVIF and AIM each agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, except as set
forth in Section 12.2(c) below, the written consent of AVIF and AIM) or actions
in respect thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against Prudential or the Underwriter pursuant to the
Policies, the costs of any ruling and closing agreement or other settlement with
the IRS, and the cost of any substitution by Prudential of Shares of another
investment company or portfolio for those of any adversely affected Fund as a
funding medium for each Account that Prudential reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) The written consent of AVIF and AIM referred to in Section 12.2(b)
above shall not be required with respect to amounts paid in connection with any
ruling and closing or other settlement with the IRS.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to Prudential, each
Account, the Underwriter or Participants.
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<PAGE>
(e) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF or AIM in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF or AIM of any such action shall not relieve
AVIF or AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF or AIM will be entitled to participate, at
its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF or AIM
to such Indemnified Party of its election to assume the defense thereof, the
Indemnified Party will cooperate fully with AVIF and shall bear the fees and
expenses of any additional counsel retained by it, and AVIF will not be liable
to such Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
(f) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Prudential, the Underwriter, or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Prudential or
the Underwriter hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants, (ii) the failure by Prudential or any Participating Insurance Company
to maintain its segregated asset account (which invests in any Fund) as a
legally and validly established segregated asset account under applicable state
law and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom), or (iii) the failure by Prudential or any
Participating Insurance Company to maintain its variable annuity and/or variable
life insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
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<PAGE>
12.4 SUCCESSORS.
This Agreement shall be binding on successors of any Party who shall be
entitled, among other things, to the benefits of the indemnification contained
in this Section 12.
12.5 ASSIGNMENTS.
This Agreement shall not be assigned by any party hereto without the prior
written consent of all the parties, which consent shall not be unreasonably
withheld.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
----------
25
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
By: /s/ ROBERT H. GRAHAM
--------------------------------------
Title:
A I M DISTRIBUTORS, INC.
By: /s/ W. G. LITTLEPAGE
--------------------------------------
Title: Senior Vice President
PRUCO LIFE INSURANCE COMPANY, on
behalf of itself and its separate accounts
By: /s/ PAUL HALEY
--------------------------------------
Title: Vice President & Actuary
PRUCO SECURITIES CORPORATION
By: /s/ RICHARD A. TOPP
--------------------------------------
Title: President
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<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
AIM V.I. Growth and Income Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
Pruco Life Flexible Premium Variable Annuity Account,
established June 16, 1995
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
Discovery Select Annuity Contract
27
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<PAGE>
AMENDMENT NO. 1
PARTICIPATION AGREEMENT
The Participation Agreement (the "Agreement"), dated September 21, 1996, by
and among AIM Variable Insurance Funds, Inc., a Maryland corporation, A I M
Distributors, Inc., a Delaware corporation, Pruco Life Insurance Company, an
Arizona life insurance company, and Pruco Securities Corporation, a New Jersey
corporation, is hereby amended as follows:
Schedule A of the Agreement is hereby deleted in its entirety and replaced
with the following:
<TABLE>
"SCHEDULE A
<CAPTION>
FUNDS AVAILABLE UNDER SEPARATE ACCOUNTS POLICIES FUNDED BY THE
THE POLICIES UTILIZING THE FUNDS SEPARATE ACCOUNTS
- --------------------- --------------------------- ------------------------
<S> <C> <C>
AIM V.I. Growth and Pruco Life Flexible Premium Discovery Select Annuity
Income Fund Variable Annuity Account, Contract
AIM V.I. Value Fund established June 16, 1995
AIM V.I. Value Fund Pruco Life Variable Variable Universal Life
Appreciable Account, Insurance Policy"
established January 13, 1984
</TABLE>
All other terms and provisions of the Agreement not amended herein shall
remain in full force and effect.
Effective Date: July 1, 1997
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ ROBERT H. GRAHAM
------------------------------ -------------------------------
Assistant Secretary President
(SEAL)
A I M DISTRIBUTORS, INC.
Attest: /s/ NANCY L. MARTIN By: /s/ MICHAEL J. CEMO
------------------------------ -------------------------------
Assistant Secretary President
(SEAL)
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<PAGE>
PRUCO LIFE INSURANCE COMPANY
Attest: /s/ THOMAS C. CASTANO By: /s/ ESTHER H. MILNES
------------------------------ -------------------------------
Assistant Secretary President
(SEAL)
PRUCO SECURITIES CORPORATION
Attest: /s/ THOMAS C. CASTANO By: /s/ RICHARD A. TOPP
------------------------------ -------------------------------
Assistant Secretary President
(SEAL)
-2-
II-42
EXHIBIT 1.A.(3)(d)(ii)
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is made and entered into as of May 16,
1997 by and among PRUCO LIFE INSURANCE COMPANY (the "Company"), AMERICAN
CENTURY INVESTMENT SERVICES, INC. ("Distributor"), and AMERICAN CENTURY
INVESTMENT MANAGEMENT, INC. ("Manager").
WHEREAS, the Company offers to the public certain individual variable
universal life contracts (the "Contracts"); and
WHEREAS, the Company wishes to offer as investment options under the
Contracts, the funds listed on EXHIBIT A hereto (the "Funds"), each of which is
a series of mutual fund shares registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"); and
WHEREAS, on the terms and conditions hereinafter set forth, Distributor and
the Manager desire to make shares of the Funds available as an investment
option under the Contracts and to retain the Company to perform certain
administrative services on behalf of the Funds;
NOW, THEREFORE, the Company, the Manager and Distributor agree as follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of this
Agreement, the Distributor will make shares of the Funds available to be
purchased, exchanged, or redeemed, by the Company on behalf of Contract owners
through the Accounts (defined in SECTION 6(a) below) through a single account
per Fund at the net asset value applicable to each order. The Funds' shares
shall be purchased and redeemed on a net basis in such quantity and at such
time as determined by the Company to satisfy the requirements of the Contracts
for which the Funds serve as underlying investment media. Dividends and capital
gains distributions will be automatically reinvested in full and fractional
shares of the Funds.
2. ADMINISTRATIVE SERVICES. The Company shall be solely responsible for
providing all administrative services for the Contract owners. The Company
agrees that it will maintain and preserve all records as required by law to be
maintained and preserved, and will otherwise comply with all laws, rules and
regulations applicable to the marketing of the Contracts and the provision of
administrative services to the Contract owners.
3. PROCESSING AND TIMING OF TRANSACTIONS.
(a) Distributor hereby appoints the Company as its agent for the limited
purpose of accepting purchase and redemption orders for Fund shares from the
Contract owners. On each day the New York Stock Exchange (the "Exchange") is
open for business (each, a "Business Day"), the Company may receive instructions
from the Contract owners for the purchase or redemption of shares of the Funds
("Orders"). Orders received and accepted by the Company prior to the close of
regular trading on the Exchange (the "Close of Trading") on any given Business
Day (currently, 3:00 p.m. Central time) and transmitted to the Funds' transfer
agent by 9:00 a.m. Central time on the next following Business Day will be
executed at the net asset value determined as of the Close of Trading on the
previous Business Day ("Day 1"). Any Orders received by the Company after the
Close of Trading, and all Orders that are transmitted by the Company after 9:00
a.m. Central time on the next following Business Day, will be executed at the
net asset value next determined following receipt of such Order. The day as of
which an Order is executed pursuant to the provisions set forth above is
referred to herein as the "Effective Trade Date".
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<PAGE>
(b) By 5:30 p.m. Central time on each Business Day, Distributor will
provide to the Company, via facsimile or other electronic transmission
acceptable to the Company, the Funds' net asset value, dividend and capital gain
information and, in the case of income funds, the daily accrual for interest
rate factor (mil rate), determined at the Close of Trading. If Distributor
provides the Company with materially incorrect share net asset value information
through no fault of the Company, the Company on behalf of the separate accounts
shall be entitled to an adjustment to the number of shares purchased or
redeemed to reflect the correct share net asset value. Any material error in the
calculation of net asset value per share, dividend or capital gain information
shall be reported to the Company promptly upon discovery.
(c) By 9:00 a.m. Central time on each Business Day, the Company will
provide to Distributor via facsimile or other electronic transmission acceptable
to Distributor a report stating whether the Orders received by the Company from
Contract owners by the Close of Trading on the preceding Business Day resulted
in the Accounts being a net purchaser or net seller of shares of the Funds. As
used in this Agreement, the phrase "other electronic transmission acceptable to
Distributor" includes the use of remote computer terminals located at the
premises of the Company, its agents or affiliates, which terminals may be linked
electronically to the computer system of Distributor, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(d) Upon the timely receipt from the Company of the report described in (c)
above, Distributor will execute the purchase or redemption transactions (as the
case may be) at the net asset value computed as of the Close of Trading on Day
1. Payment for net purchase transactions shall be made by wire transfer to the
custodial account designated by the Funds on the Business Day next following the
Effective Trade Date. Such wire transfers shall be initiated by the Company's
bank prior to 3:00 p.m. Central time and received by the Funds prior to 5:00
p.m. Central time on the Business Day next following the Effective Trade Date.
If payments for a purchase Order is not timely received, such Order will be
executed at the net asset value next computed following receipt of payment.
Payments for net redemption transactions shall be made by wire transfer by the
Funds to the account designated by the appropriate receiving party within the
time period set forth in the applicable Fund's then-current prospectus;
provided, however, Distributor will use all reasonable efforts to settle all
redemptions on the Business Day following the Effective Trade Date. On any
Business Day when the Federal Reserve Wire Transfer System is closed, all
communication and processing rules will be suspended for the settlement of
Orders. Orders will be settled on the next Business Day on which the Federal
Reserve Wire Transfer System is open and the Effective Trade Date will apply.
4. PROSPECTUS AND PROXY MATERIALS.
(a) Distributor shall provide to the shareholder of record copies of the
Funds' proxy materials, periodic fund reports to shareholders and other
materials that are required by law to be sent to the Funds' shareholders. In
addition, Distributor shall provide the Company with a sufficient quantity of
prospectuses of the Funds to be used in conjunction with the transactions
contemplated by this Agreement, together with such additional copies of the
Funds' prospectuses as may be reasonably requested by Company. If requested by
the Company in lieu thereof, Distributor or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set in
type or, at the request of the Company, as a diskette in the form sent to the
Funds' printer) and other assistance as is reasonably necessary in order for the
parties hereto once each year (or more frequently if the prospectus for the
Shares is supplemented or amended) to have the prospectus for the Contracts,
prospectuses for other mutual funds in which the Contracts may be invested, and
the Funds' new prospectus printed together in one document. If the Company
provides for pass-through voting by the Contract owners, Distributor will
provide the Company with a sufficient quantity of proxy materials for each
Contract owner.
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<PAGE>
(b) The cost of preparing, printing and shipping of the prospectuses, proxy
materials, periodic fund reports and other materials of the Funds to the Company
shall be paid by Distributor or its agents or affiliates; provided, however,
that if at any time Distributor or its agent reasonably deems the usage by the
Company of such items to be excessive, it may, prior to the delivery of any
quantity of materials in excess of what is deemed reasonable, request that the
Company demonstrate the reasonableness of such usage. If the Distributor
believes the reasonableness of such usage has not been adequately demonstrated,
it may request that the Company pay the cost of printing (including press time)
and delivery of any excess copies of such materials. Unless the Company agrees
to make such payments. Distributor may refuse to supply such additional
materials and this section shall not be interpreted as requiring delivery by
Distributor of any copies in excess of the number of copies to be provided to
existing Contract owners.
(c) The cost of distribution, if any, of any prospectuses, proxy materials,
periodic fund reports and other materials of the Funds to the Contract owners
shall be paid by the Company and shall not be the responsibility of Distributor,
Manager or the Funds.
5. COMPENSATION AND EXPENSES.
(a) The Accounts shall be the sole shareholder of Fund shares purchased for
the Contract owners pursuant to this Agreement (the "Record Owners"). The
Company and the Record Owners shall properly complete any applications or other
forms required by Distributor or the Funds' transfer agent from time to time.
(b) Distributor acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account per Fund for the Accounts rather than having each Contract
owner as a shareholder. In consideration of performance by the Company of the
administrative services and performance of all other obligations under this
Agreement by the Company, Distributor will pay the Company a fee (the
"Administrative Services fee") equal to 20 basis points (0.20%) per annum of the
average aggregate amount invested by the Company under this Agreement,
commencing with the month in which the average aggregate market value of
investments by the Company (on behalf of the Contract owners) in the Funds
exceeds $10 million. No payment obligation shall arise until the Company's
average aggregate investment in the Funds reaches $10 million, and such payment
obligation, once commenced, shall be suspended with respect to any month during
which the Company's average aggregate investment in the Funds drops below $10
million.
(c) The parties understand that Distributor customarily pays, out of its
management fee, another affiliated corporation for the type of administrative
services to be provided by the Company to the Contract owners. The parties agree
that the payments by Distributor to the Company, like Distributor's payments to
its affiliated corporation, are for administrative services only and do not
constitute payment in any manner for investment advisory services or for costs
of distribution.
(d) For the purposes of computing the payment to the Company contemplated
by this SECTION 5, the average aggregate amount invested by the Accounts in the
Funds over a one month period shall be computed by totaling the Company's
aggregate investment (share net asset value multiplied by total number of shares
of the Funds held by the Company) on each Business Day during the month and
dividing by the total number of Business Days during such month.
(e) Distributor will calculate the amount of the payment to be made
pursuant to this SECTION 5 at the end of each calendar quarter and will make
such payment to the Company within
3
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<PAGE>
30 days thereafter. The check for such payment will be accompanied by a
statement showing the calculation of the amounts being paid by Distributor for
the relevant months and such other supporting data as may be reasonably
requested by the Company and shall be mailed to:
Pruco Life Insurance Company
c/o The Prudential Insurance Company of America
Gateway Center Three, 10th Floor, Newark, NJ 07102
Attention: Dennis Kane, Director of Accounting
6. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants that: (i) this Agreement has been
duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established the
accounts set forth on EXHIBIT B hereto (the "Accounts"), which are separate
accounts under Arizona insurance law, and has to the extent required by law
registered the Accounts as unit investment trusts under the Investment Company
Act to serve as investment vehicles for the Contracts; (iii) each Contract
provides for the allocation of net amounts received by the Company to an Account
for investment in the shares of one of more specified investment companies
selected among those companies available through the Accounts to act as
underlying investment media; (iv) selection of a particular investment company
is made by the Contract owner under a particular Contract, who may change such
selection from time to time in accordance with the terms of the applicable
Contract; and (v) the activities of the Company contemplated by this Agreement
comply with all provisions of federal and state insurance, securities, and tax
laws applicable to such activities.
(b) Distributor and Manager represent that: (i) this Agreement has been
duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of
Distributor and Manager, enforceable in accordance with its terms; and (ii) the
investments of the Funds will at all times be adequately diversified within the
meaning of Section 817(h) of the Internal Revenue Service Code of 1986, as
amended (the "Code"), and the regulations thereunder, and that at all times
while this Agreement is in effect, all beneficial interests in each of the Funds
will be owned by one or more insurance companies or by any other party permitted
under Section 1.817-5(f)(3) of the Regulations promulgated under the Code. In
the event of a breach of this Section 6 (b)(ii) by the Funds, Distributor or
Manager will take all reasonable steps (A) to notify the Company of such breach
and (B) to adequately diversify the Funds so as to achieve compliance within
the grace period afforded by Treasury Regulation 1.817-5.
(c) Distributor and Manager represent that the Funds are currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code, and that it will maintain such qualification (under Subchapter M
or any successor or similar provision) and that either Distributor or Manager
will notify the Company immediately upon having a reasonable basis for believing
that the Funds have ceased to so qualify or that it might not qualify in the
future.
7. ADDITIONAL COVENANTS AND AGREEMENTS.
(a) Each party shall comply with all provisions of federal and state laws
applicable to its respective activities under this Agreement.
(b) Each party shall promptly notify the other parties in the event that it
is, for any reason, unable to perform any of its obligations under this
Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to the Accounts on any Business Day
will be based upon instructions that it
4
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<PAGE>
received from the Contract owners in proper form prior to the Close of Trading
of the Exchange on that Business Day.
(d) The Company covenants and agrees that all Orders transmitted to the
Funds' transfer agent, whether by telephone, telecopy, or other electronic
transmission acceptable to Distributor, shall be sent by or under the authority
and direction of a person designated by the Company as being duly authorized to
act on behalf of the owner of the Account. Absent actual knowledge to the
contrary, Distributor shall be entitled to rely on the existence of such
authority and to assume that any person transmitting Orders for the purchase,
redemption or transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-107 and 8-401 of the Uniform
Commercial Code with respect to the transmission of instructions regarding Fund
shares on behalf of the owner of such Fund shares. The Company shall maintain
the confidentiality of all passwords and security procedures issued, installed
or otherwise put in place with respect to the use of Remote Computer Terminals
and assumes full responsibility for the security therefor. The Company further
agrees to be solely responsible for the accuracy, propriety and consequences of
all data transmitted to Distributor by the Company by telephone, telecopy or
other electronic transmission acceptable to Distributor.
(e) The Company shall furnish, or shall cause to be furnished, to
Distributor, each piece of sales literature or other promotional material in
which a Fund, Manager or Distributor is named, at least ten business days prior
to its use. No such material shall be used if the Funds, Manager or Distributor
reasonably objects in writing to such use within ten business days after receipt
of such material.
(f) The Company shall not give any information or make any representations
or statements on behalf of any Fund or concerning any Fund other than the
information or representations contained in the registration statement or
prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for that Fund, or in sales literature or other promotional material
approved by Distributor, except with the permission of Distributor. Distributor
agrees to respond to any request for approval on a prompt and timely basis.
(g) Distributor shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material in which the Company or the Accounts is named, at least ten business
days prior to its use. No such material shall be used if the Company reasonably
objects in writing to such use within ten business days after receipt of such
material.
(h) Neither Distributor nor Manager shall give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for the Accounts which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company. The Company agrees to respond to any request for
approval on a prompt and timely basis.
(i) Distributor will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy
5
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<PAGE>
statements, sales literature and other promotional materials, and all amendments
to any of the above, that relate to that Fund or its shares, upon the Company's
request.
(j) The Company will provide to Distributor or Manager at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, solicitations for voting instructions, sales
literature and other promotional materials, and all amendments to any of the
above, that relate to the Contracts or the Accounts, upon the Distributor's or
Manager's request.
(k) For purposes of this Section 7, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, prospectuses, statements of additional information, shareholder
reports, and proxy materials and any other material constituting sales
literature or advertising under NASD rules, the Investment Company Act or the
Securities Act of 1993 (the "1933 Act").
8. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither Distributor, Manager nor the Funds shall use any trademark,
trade name, service mark or logo of the Company, or any variation of any such
trademark, trade name, service mark or logo, without the Company's prior written
consent, the granting of which shall be at the Company's sole option. Except as
otherwise expressly provided for in this Agreement, the Company shall not use
any trademark, trade name, service mark or logo of Manager, Distributor or the
Funds, or any variation of any such trademarks, trade names, service marks, or
logos, without the prior written consent of either Manager, Distributor or the
Funds, as appropriate, the granting of which shall be at the sole option of
Distributor, Manager and/or the Funds.
9. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the Investment Company
Act as requiring such privileges. It shall be the responsibility of the Company
to assure that it calculates voting privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by Distributor and will vote shares in accordance with instructions
received from such Contract owners. The Company shall vote Fund shares for which
no instructions have been received in the same proportion as shares for which
such instructions have been received. The Company and its agents shall not
oppose or interfere with the solicitation of proxies for Fund shares held for
such Contract owners.
10. INDEMNITY.
(a) Distributor and Manager agree to indemnify and hold harmless the
Company and its officers, directors, employees, agents, affiliates and each
person, if any, who controls the Company within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this SECTION 10(a))
against any losses, claims, expenses, damages or liabilities (including amounts
paid in settlement thereof) or litigation expenses (including legal and other
expenses) (collectively, "Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses (i) result
6
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<PAGE>
from a breach by Distributor or Manager of a material provision of this
Agreement, or (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement or prospectus of the Funds or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Distributor or Manager will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. Distributor shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or misconduct of the
Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless Distributor, Manager
and the Funds and their respective officers, directors, employees, agents,
affiliates and each person, if any, who controls the Funds, Manager or
Distributor within the meaning of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this SECTION 10(b)) against any Losses to which the
Indemnified Parties may become subject, insofar as such Losses (i) result from a
breach by the Company of a material provision of this Agreement, or (ii) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained on any registration statement or prospectus of the
Company regarding the Contracts, if any, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) result from the use by any person of a Remote Computer Terminal. The
Company will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such
Losses. The Company shall not be liable for indemnification hereunder if such
Losses are attributable to the negligence or misconduct of Distributor, Manager
or the Funds in performing their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this SECTION 10. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this SECTION 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action, the
indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgment in respect thereof, unless in connection with such settlement,
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
11. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by Distributor on December 21, 1987, with the SEC and the
order issued by the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the requested relief set
forth in such application for exemptive relief. As set forth in
7
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<PAGE>
such application, the Board of Directors of the Funds (the "Board") will monitor
the Funds for the existence of any material irreconcilable conflict between the
interests of the contract owners of all separate accounts investing in the
Funds. An irreconcilable material conflict may arise for a variety of reasons,
including: (i) an action by any state insurance regulatory authority; (ii) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar actions by insurance, tax or securities
regulatory authorities; (iii) an administrative or judicial decision in any
relevant proceeding; (iv) the manner in which the investments of any portfolio
are being managed; (v) a difference in voting instructions given by variable
annuity contract owners and variable life insurance contract owners; or (vi) a
decision by an insurer to disregard the voting instructions of contract owners.
The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contract owner investments in the Funds, the Board shall give prompt notice
to all Participating Companies. If the Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Board members), take such action as is necessary
to remedy or eliminate the irreconcilable material conflict. Such necessary
action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Accounts from the Funds and
reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a
vote of all affected contract owners and as appropriate, segregating
the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or
more Participating Companies) that votes in favor of such segregation,
or offering to the affected contract owners the option of making such
a change; and/or
(ii) establishing a new registered management investment company or managed
separate account.
(d) If a material irreconcilable conflict arises as a result of a decision
by the Company to disregard its contract owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contract owners having an interest in the Funds, the Company at its sole
cost, may be required, at the Board's election, to withdraw the Accounts'
investment in the Funds and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this SECTION 11, a majority of the disinterested
Board members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict but in no event will the Funds be
required to establish a new funding medium for any Contract. The Company shall
not be required by this SECTION 11 to establish a new funding
8
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<PAGE>
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners materially adversely affected by the
irreconcilable material conflict.
12. TERMINATION. This agreement shall terminate as to the sale and issuance
of new Contracts:
(a) at the option of either the Company, Distributor or the Manager upon
six months' advance written notice to the other;
(b) at the option of the Company if the Funds' shares are not available for
any reason to meet the requirement of Contracts as determined by the Company.
Reasonable advance notice of election to terminate shall be furnished by
Company;
(c) at the option of either the Company, Distributor or the Manager, upon
institution of formal proceedings against the broker-dealer or broker-dealers
marketing the Contracts, any Account, the Company, Distributor, or the Funds by
the National Association of Securities Dealers, Inc. (the "NASD"), the SEC or
any other regulatory body;
(d) upon termination of the Management Agreement between the Funds and
Manager. Notice of such termination shall be promptly furnished to the Company.
This SUBSECTION (d) shall not be deemed to apply if contemporaneously with such
termination a new contract of substantially similar terms is entered into
between the Funds and Manager;
(e) upon the requisite vote of Contract owners having an interest in any of
the Funds to substitute for the Funds' shares the shares of another investment
company in accordance with the terms of Contracts for which the Funds' shares
had been selected to serve as the underlying investment medium. The Company will
give 60 days' written notice to the Funds and Distributor of any proposed vote
to replace the Funds' shares;
(f) upon assignment of this Agreement unless made with the written consent
of all other parties hereto;
(g) if the Funds' shares are not registered, issued or sold in conformance
with Federal law or such law precludes the use of Fund shares as an underlying
investment medium of Contracts issued or to be issued by the Company. Prompt
notice shall be given by either party should such situation occur;
(h) at the option of Distributor or Manager, if Distributor or Manager
reasonably determines in good faith that the Company is not offering shares of
the Funds in conformity with the terms of this Agreement or applicable law;
(i) at the option of any party hereto upon a determination that continuing
to perform under this Agreement would, in the reasonable opinion of the
terminating party's counsel, violate any applicable federal or state law, rule,
regulation or judicial order;
(j) At the option of the Company if a Fund fails to meet the
diversification requirements specified in Section 6(b)(ii) hereof; or
(k) At the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement.
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<PAGE>
13. CONTINUATION OF AGREEMENT. Termination as the result of any cause
listed in SECTION 12 shall not affect Distributor's obligation to continue to
cause the Funds to furnish their shares under the terms of this Agreement to
Contracts then in force for which its shares serve or may serve as the
underlying medium (unless such further sale of Fund shares is proscribed by law
or the SEC or other regulatory body). Following termination, Distributor shall
not have any Administrative Services payment obligation to the Company (except
for payment obligations accrued but not yet paid as of the termination date).
14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
this Agreement and the arrangement described herein are intended to be
non-exclusive and that each of the parties is free to enter into
similar agreements and arrangements with other entities.
15. SURVIVAL. The provisions of SECTION 8 (use of names) and SECTION 10
(indemnity) of this Agreement shall survive termination of this Agreement.
16. AMENDMENT. Neither this Agreement, nor any provision hereof, may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by all of the parties hereto.
17. NOTICES. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they are directed at
the following addresses, or at such other addresses as may be designated by
notice from such party to all other parties.
To the Company:
Pruco Life Insurance Company
213 Washington Street
Newark, NJ 07102
Attention: Thomas C. Castano, Esq.
(201) 802-4708 (office number)
(201) 802-9560 (telecopy number)
To Distributor or Manager:
American Century Investments
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.
18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without the
written consent of all parties to the Agreement at the time of such assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
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<PAGE>
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the matters dealt with herein, and
supersedes all previous agreements, written or oral, with respect to such
matters.
22. CONFIDENTIALITY. Subject to applicable law and regulatory authority,
each party hereto shall treat as confidential all information reasonably
identified as such in writing by any other party hereto (including without
limitation the names and addresses of the owners of the Contracts) and, except
as contemplated by this Agreement, shall not disclose, disseminate or utilize
such confidential information until such time as it may come into the public
domain without the expressed prior written consent of the affected party.
23. COOPERATION. Each party hereto shall cooperate with each other party
and all appropriate govermental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit each other and
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
AMERICAN CENTURY INVESTMENT PRUCO LIFE INSURANCE COMPANY
SERVICES, INC.
By: /s/ WILLIAM M. LYONS By: /s/ ESTHER H. MILNES
------------------------------- -------------------------------
William M. Lyons Name: Esther H. Milnes
Executive Vice President Title: President
AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
By: /s/ WILLIAM M. LYONS
-------------------------------
William M. Lyons
Executive Vice President
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<PAGE>
EXHIBIT A
FUNDS AVAILABLE
================================================================================
ISSUER NAME OF FUND
- --------------------------------------------------------------------------------
TCI Portfolios, Inc. TCI Value
================================================================================
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<PAGE>
EXHIBIT B
ACCOUNTS
Pruco Life Variable Appreciable Account
13
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EXHIBIT 1.A.(3)(d)(iii)
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 12 day of August, 1996, between JANUS ASPEN
SERIES, an open~end management investment company organized as a Delaware
business trust (the "Trust"), JANUS CAPITAL CORPORATION, a Colorado corporation
(the "Adviser"), and PRUCO LIFE INSURANCE COMPANY, a life insurance company
organized under the laws of the State of Arizona (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company set forth
on Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and l5(b)
of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3-(T)(b)(l5) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered or will register (unless registration
is not required under applicable law) each Account as a unit investment trust
under the 1940 Act; and
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<PAGE>
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts; and
WHEREAS, the Adviser is registered as an investment adviser under the 1940
Act and serves as investment adviser to the Trust;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I
SALE OF TRUST SHARES
1.1 The Trust shall make shares of its Portfolios available to the Accounts
at the net asset value next computed after receipt of such purchase order by the
Trust (or its agent), as established in accordance with the provisions of the
then current prospectus of the Trust. Shares of a particular Portfolio of the
Trust shall be ordered in such quantities and at such times as determined by the
Company to be necessary to meet the requirements of the Contracts. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 11:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
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<PAGE>
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the
same Business Day that the Trust receives notice of the order. Payments shall be
made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.7 The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6 p.m. New York time. If the
Trust provides the Company with materially incorrect share net asset value
information through no fault of the Company, the Company on behalf of the
separate accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported to the Company promptly upon discovery.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans as provided under Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder ("Code"), to the extent
permitted by the Exemptive Order. No shares of any Portfolio will be sold
directly to the general public. The Company agrees that Trust shares will be
used only for the purposes of funding the Contracts and Accounts listed in
Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.8 and Article IV of
this Agreement.
ARTICLE II
OBLIGATIONS OF THE PARTIES
2.1 The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports,
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<PAGE>
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of the Trust. The Trust shall bear the costs of registration and qualification
of its shares, preparation and filing of the documents listed in this Section
2.1 and all taxes to which an issuer is subject on the issuance and transfer of
its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.3 The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
2.4 The Company agrees and acknowledges that the Adviser is the sole owner
of the name and mark "Janus" and that all use of any designation comprised in
whole or part of Janus (a "Janus Mark") under this Agreement shall inure to the
benefit of the Adviser. Except as provided in Section 2.5, the Company shall not
use any Janus Mark on its own behalf or on behalf of the Accounts or Contracts
in any registration statement, advertisement, sales literature or other
materials relating to the Accounts or Contracts without the prior written
consent of the Adviser. Upon termination of this Agreement for any reason, the
Company shall cease all use of any Janus Mark(s) as soon as reasonably
practicable.
2.5 The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or the Adviser is named prior to the filing of
such document with the Securities and Exchange Commission. The Company shall
furnish, or shall cause to be furnished, to the Trust or its designee, each
piece of sales literature or other promotional material in which the Trust or
the Adviser is named, at least ten Business Days prior to its use. No such
material shall be used if the Trust or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
2.6 The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or the Adviser in
connection with the
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sale of the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the Trust
shares (as such registration statement and prospectus may be amended or
supplemented from time to time), reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by the
Trust or its designee, except as required by legal process or regulatory
authorities or with the written permission of the Trust or its designee.
2.7 Neither the Trust nor the Adviser shall give any information or make
any representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement or
prospectus for the Contracts (as such registration statement and prospectus may
be amended or supplemented from time to time), or in materials approved by the
Company for distribution including sales literature or other promotional
materials, except as required by legal process or regulatory authorities or with
the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company wlll provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state insurance
laws that restrict the Portfolios' investments or otherwise affect the operation
of the Trust and shall notify the Trust of any changes in such laws.
2.10 For purposes of this Article, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, video tape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published articles,) educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional
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information, shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under NASD Rules, the 1940 Act or
the 1933 Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Arizona and
that it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account (1) has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act or, alternatively (2) has not been registered in proper reliance upon
an exclusion from registration under the 1940 Act.
3.3 The Company represents and warrants that the Contracts or interests in
the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
3.4 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Delaware.
3.5 The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to any issuance or sale of
such shares. The Trust shall amend its registration statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
8l7(h) of the Code. In the event of a breach of this Article by a Portfolio, the
Portfolio will take all reasonable steps to notify the Company of such breach
and to adequately diversify the Portfolio so as to achieve compliance with the
grace period afforded by Treasury Regulation 1.817-5.
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3.7 The Trust represents that it is currently qualified as a regulated
investment company under Subchapter M of the Code, that it will maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
ARTICLE IV
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
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4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented. Until the end of such six (6)
month period, the Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonable request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and sald reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust
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and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Trust, the Adviser, and each of their Trustees or Directors,
officers, employees and agents and each person, if any, who controls the Trust
or the Adviser within the meaning of Seclion 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration
statement or prospectus for the Contracts or in the Contracts themselves or
in sales literature generated or approved by the Company on behalf of the
Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and was accurately derived from written information furnished to the
Company by or on behalf of the Trust or the Adviser for use in Company
Documents or otherwise for use in connection with the sale of the Contracts
or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust or the Adviser by or on behalf of the Company; or
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(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2 INDEMNIFICATION BY THE TRUST AND THE ADVISER. The Trust and Adviser
agree to indemnify and hold harmless the Company and each of its directors, the
Adviser, officers, employees and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or expenses (including the reasonable costs
of investigating defending any alleged loss, claim, damage, liability or expense
and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust by or on
behalf of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or the Adviser or
persons under their control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Trust
or the Adviser; or
(d) arise out of or result from any failure by the Trust or the
Adviser to provide
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the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or waranty made by the Trust or Adviser in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Trust or the Adviser.
5.3 None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4 None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other parties in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties, the
indemnifying party shall be entitled to participate, at its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
5.6 The indemnifications provided by the parties hereunder are in addition
to any liability the parties may otherwise have.
ARTICLE VI
TERMINATION
6.1 This Agreement may be terminated by any party for any reason by ninety
(90) days advance written notice delivered to the other parties.
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio)
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pursuant to the terms and conditions of this Agreement for all Contracts in
effect on the effective date of termination of this Agreement, provided that the
Company continues to pay the costs set forth in Section 2.3.
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Adviser:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
If to the Company:
Pruco Life Insurance Company
751 Broad Street, 21 Plaza
Newark, New Jersey 07102
Attention: Mary L. Cavanaugh, Esq.
ARTICLE VIII
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
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8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of State of Colorado.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by any party without the prior written approval of the other parties.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by each
party.
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IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
PRUCO LIFE INSURANCE COMPANY
By: /s/ PAUL HALEY
----------------------------------
Name: Paul Haley
Title: Vice President & Actuary
JANUS ASPEN SERIES
By: /s/ DEBBY E. BIELICKE
----------------------------------
Name: Debby E. Bielicke
Title: Assistant Vice President
JANUS CAPITAL CORPORATION
By /s/ STEPHEN L. STIENEKER
------------------------------------
Name: Stephen L. Stieneker
Title: Vice President
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SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- --------------------------------------- -------------------
Pruco Life Flexible Premium Discovery Select Annuity Contract
Variable Annuity Account
est. June 16, 1995
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AMENDMENT TO FUND PARTICIPATION AGREEMENT
This Amendment to the Fund Participation Agreement ("Agreement") dated
August 12, 1996, between Janus Capital Corporation, a Colorado corporation
("Janus"), and Pruco Life Insurance Company, an Arizona life insurance company
(the "Company") is effective as of May 16, 1997.
AMENDMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree to amend the Agreement as follows:
1. Schedule A of this Agreement shall be deleted and replaced with the
attached Schedule A.
All other terms of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Amendment as of the date and year first above written.
PRUCO LIFE INSURANCE COMPANY
By: /s/ ESTHER H. MILNES
---------------------
Name: Esther H. Milnes
Title: President
JANUS CAPITAL CORPORATION
By: /s/ STEPHEN L. STIENEKER
-------------------------
Name: Stephen L. Stieneker
Title: Vice President of Compliance
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SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
Pruco Life Flexible Premium Discovery Select Annuity Contract
Variable Annuity Account
est. June 16, 1995
Pruco Life Variable Appreciable Account Variable Universal Life Insurance
est. January 13, 1984 Contract
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EXHIBIT 1.A.(3)(d)(iv)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
PRUCO LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 2nd day of July 1996, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), PRUCO LIFE INSURANCE COMPANY, an Arizona corporation (the "Company"),
on its own behalf and on behalf of each of the segregated asset accounts of the
Company set forth in Schedule A hereto, as may be amended from time to time (the
"Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a Delaware
corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, Pruco Securities Corporation ("Prusec"), the underwriter for the
individual variable annuity and the variable life policies, is registered as a
broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase
by such Accounts, executing such orders on a daily basis at the net
asset value next computed after receipt by the Trust or its designee
of the order for the Shares. For purposes of this Section 1.1, the
Company shall be the designee of the Trust for receipt of such orders
from Policy owners and receipt by such designee shall constitute
receipt by the Trust; provided that the Trust receives notice of such
orders by 9:30 a.m. New York time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock
Exchange, Inc. (the "NYSE") is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company
and the Accounts on those days on which the Trust calculates its net
asset value pursuant to rules of the SEC and the Trust shall calculate
such net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may retuse to sell any Shares to the Company and the
Accounts, or suspend or terminate the offering of the Shares if such
action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interest of the
Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and
MFS or its affiliates in accordance with Section 817(h)(4) of the
Internal Revenue Code of 1986, as amended, and the regulations
thereunder. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles III and VII of this
Agreement is in effect to govern such sales. The Company will not
resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request,
any full or fractional Shares held by the Accounts (based on orders
placed by Policy holders on that Business Day), executing such
requests on a daily basis at the net asset value next computed after
receipt by the Trust or its designee of the request for redemption.
For purposes of this Section 1.4, the Company shall be the designee of
the Trust for receipt of requests for redemption from Policy owners
and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such request for redemption
by 9:30 a.m. New York time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the
Company shall be placed separately for each Portfolio and shall not be
netted with respect to any Portfolio. However, with respect to payment
of the purchase price by the Company and of redemption proceeds by the
Trust, the Company and the Trust shall net purchase and redemption
orders with respect to each Portfolio and shall transmit one net
payment for all of the Portfolios in accordance with Section 1.6
hereof.
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1.6. In the event of net purchases, the Company shall pay for the
Shares by 2:00 p.m. New York time on the next Business Day after an
order to purchase the Shares is made in accordance with the provisions
of Section 1.1. hereof. In the event of net redemptions, the Trust
shall pay the redemption proceeds by 2:00 p.m. New York time on the
next Business Day after an order to redeem the shares is made in
accordance with the provisions of Section 1.4. hereof. All such
payments shall be in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust will be recorded in an appropriate
title for the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
foflowed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable
on a Portfolio's Shares in additional Shares of that Portfolio. The
Trust shall notify the Company of the number of Shares so issued as
payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per
share for each Portfolio available to the Company on each Business Day
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York time. In the event that the
Trust is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the
purchase and redemption of Shares. Such additional time shall be equal
to the additional time which the Trust takes to make the net asset
value available to the Company. If the Trust provides materially
incorrect share net asset value information, the Trust shall make an
adjustment to the number of shares purchased or redeemed for the
Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold,
and distributed in compliance in all material respects with all
applicable state and federal laws, including without limitation the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act. The Company further represents and warrants
that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established
the Account as a segregated asset account under applicable law and has
registered or, prior to any issuance or sale of the Policies, will
register the Accounts as unit investment trusts in accordance with the
provisions of the 1940 Act (unless exempt therefrom) to serve as
segregated investment accounts for the Policies, and that it will
maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under
the 1933 Act for the Policies and the registration statements under
the 1940 Act for the Accounts from time to time as required in order
to effect the continuous offering of the Policies or as may otherwise
be required by applicable law. The Company shall register and qualify
the Policies for sales accordance with the securities laws of the
various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life
insurance, endowment or annuity contract under applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), that it
will maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the
Policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that Prusec, the underwriter
for the individual variable annuity and the variable life policies, is
a member in good standing of the NASD and is a registered broker-
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dealer with the SEC. The Company represents and warrants that the
Company and Prusec will sell and distribute such policies in
accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for issuance and sold in compliance with the laws of
The Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered
under the 1940 Act The Trust shall amend the registration statement
for its Shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its Shares.
The Trust shall register and qualify the Shares for sale in accordance
with the laws of the various states only if and to the extent deemed
necessary by the Trust
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with
the SEC. The Trust and MFS represent that the Trust and the
Underwriter will sell and distribute the Shares in accordance in all
material respects with all applicable state and federal securities
laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
any applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS
represents and warrants that it is not subject to state securities
laws other than the securities laws of The Commonwealth of
Massachusetts and that it is exempt from registration as an
investment adviser under the securities laws of The Commonwealth of
Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably
request so that it may carry out fully the obligations imposed upon
it by the conditions contained in the exemptive application pursuant
to which the SEC has granted exemptive relief to permit mixed and
shared funding (the "Mixed and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the
Shares as the Company may reasonably request for distribution to
existing Policy owners whose Policies are funded by such Shares. The
Trust or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares
as the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof,
the Trust or its designee shall provide such documentation (including
a "camera ready" copy of the new prospectus as set in type or, at the
request of the Company, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in
order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be
apportioned between (a) the Company and (b) the Trust or its designee
in proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of other relevant factors affecting the
expense of printing, such as covers, columns, graphs and charts; the
Trust or its designee to bear the cost of printing the Shares'
prospectus portion of such document for distribution to owners of
existing Policies funded by the Shares and the Company to bear the
expenses of printing the portion of such document relating to the
Accounts; provided, however, that the Company shall bear all printing
expenses of such combined documents where used for
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distribution to prospective purchasers or to owners of existing
Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's
prospectus in a "camera ready" or diskette format, the Trust shall be
responsible for providing the prospectus in the format in which it or
MFS is accustomed to formatting prospectuses and shall bear the
expense of providing the prospectus in such format (e.g., typesetting
expenses), and the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or
its designee. The Trust or its designee, at its expense, shall print
and provide such statement of additional information to the Company
(or a master of such statement suitable for duplication by the
Company) for distribution to any owner of a Policy funded by the
Shares. The Trust or its designee, at the Company's expense, shall
print and provide such statement to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to
a prospective purchaser who requests such statement or to an owner of
a Policy not funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of
charge copies, if and to the extent applicable to the Shares, of the
Trust's proxy materials, reports to Shareholders and other
communications to Shareholders in such quantity as the Company shall
reasonably require for distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3
above, or of Article V below, the Company shall pay the expense of
printing or providing documents to the extent such cost is considered
a distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Shares'
prospectus or prospectuses for distribution to prospective purchasers
or to owners of existing Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate
to include in the prospectus pursuant to which a Policy is offered
disclosure regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been received
in the same proportion as the Shares of such Portfolio for
which instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable
contract owners. The Company will in no way recommend action in
connection with or oppose or interfere with the solicitation of
proxies for the Shares held for such Policy owners. The Company
reserves the right to vote shares held in any segregated asset account
in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of
their separate accounts holding Shares calculates voting privileges in
the manner required by the Mixed and Shared Funding Exemptive Order.
The Trust and MFS will notify the Company of any changes of
interpretations or amendments to the Mixed and Shared Funding
Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least
three (3) Business Days prior to its use. No such material
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shall be used if the Trust, MFS, or their respective designees
reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in
the registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the
Trust, MFS or their respective designees, except with the permission
of the Trust, MFS or their respective designees. The Trust, MFS or
their respective designees each agrees to respond to any request for
approval on a prompt and timely basis. The Company shall adopt and
implement procedures reasonably designed to ensure that information
concerning the Trust, MFS or any of their affiliates which is
intended for use only by brokers or agents selling the Policies (i.e.,
information that is not intended for distribution to Policy holders or
prospective Policy holders) is so used, and neither the Trust, MFS
nor any of their affiliates shall be liable for any losses, damages or
expenses relating to the improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or
the Accounts is named, at least three (3) Business Days prior to its
use. No such material shall be used if the Company or its designee
reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf
of the Company or concerning the Company, the Accounts, or the
Policies in connection with the sale of the Policies other than the
information or representations contained in a registration statement,
prospectus, or statement of additional information for the Policies,
as such registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to
respond to any request for approval on a prompt and timely basis. The
parties hereto agree that this Section 4.4. is neither intended to
designate nor otherwise imply that MFS is an underwriter or
distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least
one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Policies, or to the Trust or its
Shares, prior to or contemporaneously with the filing of such document
with the SEC or other regulatory authorities. The Company and the
Trust shall also promptly inform the other or the results of
any examination by the SEC (or other regulatory authorities) that
relates to the Policies, the Trust or its Shares, and the party that
was the subject of the examination shall provide the other party with
a copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio,
and of any material change in the Trust's registration statement,
particularly any change resulting in change to the registration
statement or prospectus or statement of additional information for any
Account. The Trust and MFS will cooperate with the Company so as to
enable the Company to solicit proxies from Policy owners or to make
changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will
make
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reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates
for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase
"sales literature or other promotional material" includes but is not
limited to advertisements (such as material published, or designed for
use in, a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media), and sales literature (such as
brochures, circulars, reprints or excerpts or any other advertisement,
sales literature, or published articles), distributed or made
generally available to customers or the public, educational or
training materials or communications distributed or made generally
available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-l under the 1940 Act
to finance distribution and Shareholder servicing expenses, then,
subject to obtaining any required exemptive orders or regulatory
approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust
in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expense initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent
the parties hereto from otherwise agreeing to perform, and arranging
for appropriate compensation for, other services relating to the Trust
and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the
Trust's registration statement, and payment of filing fees and
registration fees; preparation and filing of the Trust's proxy
materials and reports to Shareholders; setting in type and printing
its prospectus and statement of additional information (to the extent
provided by and as determined in accordance with Article III above);
setting in type and printing the proxy materials and reports to
Shareholders (to the extent provided by and as determined in
accordance with Article III above); the preparation of all statements
and notices required of the Trust by any federal or state law with
respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and
proxy materials to owners of Policies funded by the Shares and any
expenses permitted to be paid or assumed by the Trust pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act. The Trust shall
not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies
and of distributing the Trust's Shareholder reports and proxy materials
to Policy owners. The Company shall bear all expenses associated with
the registration, qualification, and filing of the Policies under
applicable federal securities and state insurance laws; the cost of
preparing, printing and distributing the Policy prospectus and
statement of additional information; and the cost of preparing,
printing and distributing annual individual account statements for
Policy owners as required by state insurance laws.
5.4. MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result
of operations necessitated by the beneficial ownership by Policy
owners of shares of the Portfolios of the Trust, equal to 0.15% per
annum of the net assets of the Trust attributable to variable life or
variable annuity contracts offered by Company or its affiliates up to
$100 million and 0.20% per annum of the net assets of the Trust
attributable to such contracts over $100 million. In no event shall
such fee be paid by the Trust, its shareholders or by the Policy
holders.
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ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of
the Trust will meet the diversification requirements of Section
8l7(h)(l) of the Code and Treas. Reg. 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts, as they may be amended from time to time (and any
revenue rulings, revenue procedures, notices, and other published
announcements of the Internal Revenue Service interpreting these
Sections), as if those requirements applied directly to each such
Portfolio. In the event that any Portfolio is not so diversified at
the end of any applicable quarter, the Trust and MFS will make every
effort to (a) adequately diversify the Portfolio so as to achieve
compliance within the grace period afforded by Treas. Reg. 1.817-5 and
(b) notify the Company.
6.2 The Trust and MFS represent that each Portfolio of the Trust will
elect to be qualified as a Regulated Investment Company under
Subchapter M of the Code and that every effort will be made to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that the Trust or its designee will notify the
Company promptly upon having a reasonable basis for believing that any
Portfolio of the Trust has ceased to so qualify or that any Portfolio
might not so qualify in the future.
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for
the existence of any material irreconcilable conflict between the
interests of the variable annuity contract owners and the variable
life insurance policy owners of the Company and/or affiliated
companies ("contract owners") investing in the Trust. The Board shall
have the sole authority to determine if a material irreconcilable
conflict exists, and such determination shall be binding on the
Company only if approved in the form of a resolution by a majority of
the Board, or a majority of the disinterested trustees of the Board.
The Board will give prompt notice of any such determination to the
Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC
has granted the Mixed and Shared Funding Exemptive Order by providing
the Board, as it may reasonably request, with all information
necessary for the Board to consider any issues raised and agrees that
it will be responsible for promptly reporting any potential or
existing conflicts of which it is aware to the Board including, but
not limited to, an obligation by the Company to inform the Board
whenever contract owner voting instructions are disregard. The Company
also agrees that, if a material irreconcilable conflict arises, it
will at its own cost remedy such conflict up to and including (a)
withdrawing the assets allocable to some or all of the Accounts from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting to a vote of all affected contract owners
whether to withdraw assets from the Trust or any Portfolio and
reinvesting such assets in a different investment medium and, as
appropriate, segregating the assets attributable to any appropriate
group of contract owners that votes in favor of such segregation, or
offering to any of the affected contract owners the option of
segregating the assets attributable to their contracts or policies,
and (b) establishing a new registered management investment company
and segregating the assets underlying the Policies, unless a majority
of Policy owners materially adversely affected by the conflict have
voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately
remedies any material irreconcilable conflict. In the event that the
Board determines that any proposed action does not adequately remedy
any material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the
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foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required to remedy any
such material irreconcilable conflict as determined by a majority of
the disinterested trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with
respect to mixed or shares funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different
from those contained in the Mixed Shared Funding Exemptive Order, then
(a) the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with
Rule 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2,
7.3 and 7.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust,
MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls the
Trust or MFS within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or expenses (including reasonable counsel fees) to which an
Indemnified Party may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Shares or the Policies
and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Policies or contained in the
Policies or sales literature or other promotional material
for the Policies (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
commission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Company or its designee by or on behalf of the Trust
or MFS for use in the registration statement, prospectus or
statement of additional information for the Policies or in
the Policies or sales literature or other promotional
material (or any amendment or supplement) or otherwise for
use in connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Trust not supplied by the Company or this
designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Trust, or any amendment thereof or
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supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2. INDEMNIFICATION BY THE TRUST
The Trust agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act,
and any agents or employees of the foregoing (each an "Indemnified
Party," or collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Trust) or expenses (including reasonable counsel fees) to which any
Indemnified Party may become subject under any statute, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to
the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to the Trust, MFS, the Underwriter or their respective
designees by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Trust or in sales literature
or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statement or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by the Trust, MFS,
the Underwriter or any of their respective designees or
persons under their respective control and on which any such
entity has reasonably relied) or wrongful conduct of the
Trust or persons under its control, with respect to the sale
or distribution of the Policies or Shares; or
(c) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements or a failure to qualify as a registered
investment company, each as specified in Article VI of this
Agreement) or arise out of or result from any other material
breach of this Agreement by the Trust; or
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<PAGE>
(d) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(e) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating
Insurance Company or any Policy holder, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or covenant
made by the Company hereunder or by any Participating Insurance
Company under an agreement containing substantially similar
representations, warranties and covenants; (ii) the failure by the
Company or any Participating Insurance Company to maintain its
segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable
state law and as a duly registered unit investment trust under the
provisions of the 1940 Act (unless exempt therefrom); or (iii) the
failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts
(with respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to
any losses, claims, damages, liabilities or expenses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, willful misconduct, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of commencement of action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party
under this section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any Indemnified
Party otherwise than under this section. In case any such action is
brought against any Indemnified Party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such
Indemnified Party. After notice from the indemnifying party of its
intention to assume the defense of an action, the Indemnified Party
shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified Party
under this section for any legal or other expenses subsequently
incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties
of the commencement of any litigation or proceeding against it or any
of its respective officers, directors, trustees, employees or 1933 Act
control persons in connection with the Agreement, the issuance or sale
of the Policies, the operation of the Accounts, or the sale or
acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this Article
VIII are in addition to any liability the parties may otherwise have.
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<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing,
the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or
6e-3(T) under the 1940 Act. Prompt notice of the election to
terminate for such cause and an explanation of such cause
shall be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any
State securities or insurance department or any other
regulatory body regarding the Trust's or MFS' duties under
this Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt
of any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio
Shares had been selected to serve as the underlying
investment media. The Company will give thirty (30) days'
prior written notice to the Trust of the Date of any
proposed vote or other action taken to replace the Shares;
or
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<PAGE>
(f) termination by either the Trust or MFS by written notice to
the Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Trust
and MFS, if the Company shall determine, in its sole
judgment exercised in good faith, that the Trust or MFS has
suffered a material adverse change in this business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 11.1(a) may be
exercised for cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations,
the Company shall not redeem the Shares attributable to the Policies
(as opposed to the Shares attributable to the Company's assets held in
the Accounts), and the Company shall not prevent Policy owners from
allocating payments to a Portfolio that was otherwise available under
the Policies, until thirty (30) days after the Company shall have
notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make available
additional shares of the Portfolios pursuant to the terms and
conditions of this Agreement, for all Policies in effect on the
effective date of termination of this Agreement (the "Existing
Policies"), except as otherwise provided under Article VII of this
Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate
investment under the Policies, redeem investments in any Portfolio
and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies.
11.6. If this Agreement terminates, the parties agree that Article
VIII, and to the extent that all or a portion of the assets of the
Accounts continue to be invested in the Trust, Articles I, II, III, VI
and VII, will remain in effect after termination.
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<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
PRUCO LIFE INSURANCE COMPANY
751 Broad Street, 21 Plaza
Newark, NJ 07102-3777
Attn: Mary L. Cavanaugh,
Deputy Chief Legal Officer
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and,
except as permitted by this Agreement or as otherwise required by
applicable law or regulation, shall not disclose, disseminate or
utilize such names and addresses and other confidential information
without the express written consent of the affected party until such
time as it may come into the public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and
the same instrument.
13.4. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
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<PAGE>
l3.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument
are not binding upon any of the Trust's trustees, officers, employees,
agents or shareholders individually, but are binding solely upon the
assets and property of the Trust in accordance with its proportionate
interest hereunder. The Company further acknowledges that the assets
and liabilities of each Portfolio are separate and distinct and that
the obligations of or arising out of this instrument are binding
solely upon the assets or property of the Portfolio on whose behalf
the Trust has executed this instrument. The Company also agrees that
the obligations of each Portfolio hereunder shall be several and not
joint, in accordance with its proportionate interest hereunder, and
the Company agrees not to proceed against any Portfolio for the
obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
PRUCO LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ PAUL HALEY
------------------------------------------------
Title: Vice President & Actuary
---------------------------------------------
MFS VARIABLE INSURANCE TRUST, on behalf of the Portfolios
By its authorized officer and not individually,
By: /s/ A. KEITH BRODKIN
------------------------------------------------
A. Keith Brodkin, Chairman
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ ARNOLD D. SCOTT
------------------------------------------------
Arnold D. Scott, Senior Executive Vice President
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<PAGE>
As of July 2, 1996
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
================================================================================
NAME OF SEPARATE
ACCOUNT AND DATE POLICIES FUNDED PORTFOLIOS
ESTABLISHED BY BOARD OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
================================================================================
The Pruco Life Flexible Premium Discovery Select Emerging Growth Fund
Variable Annuity Account Annuity Contract Research Fund
(Est. 6/16/95)
- --------------------------------------------------------------------------------
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<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
Pursuant to the Participation Agreement, made and entered into as of the
2nd day of July 1996, by and among MFS(R) Variable Insurance Trust(sm), Pruco
Life Insurance Company, and Massachusetts Financial Services Company, the
parties hereby agree to an amended Schedule A as attached hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
the Participation Agreement to be executed in its name and on its behalf by its
duly authorized representative. The Amendment shall take effect on May 1, 1997.
PRUCO LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ ESTHER H. MILNES
---------------------------------
Title: President
---------------------------------
Date: May 12, 1997
---------------------------------
MFS(R) VARIABLE INSURANCE TRUST(sm)
By its authorized officer,
By: /s/ STEPHEN E. CAVAN
---------------------------------
Stephen E. Cavan
Secretary
Date: April 24, 1997
---------------------------------
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: /s/ ARNOLD D. SCOTT
---------------------------------
Arnold D. Scott
Senior Executive Vice President
Date: April 24, 1997
---------------------------------
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<PAGE>
As of May 1, 1997
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
================================================================================
NAME OF SEPARATE
ACCOUNT AND DATE
ESTABLISHED BY BOARD POLICIES FUNDED PORTFOLIOS
OF DIRECTORS BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
================================================================================
The Pruco Life Flexible Premium Discovery Select MFS Emerging Growth Series
Variable Annuity Account Annuity Contract MFS Research Fund
(Est. 6/16/95)
- --------------------------------------------------------------------------------
Pruco Life Variable Variable Universal MFS Emerging Growth Series
Appreciable Account Life Insurance
(Est. 1/13/84) Policy
- --------------------------------------------------------------------------------
II-90
EXHIBIT 1.A.(3)(d)(v)
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
PRUCO LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 8th day of July, 1996 by
and among Pruco Life Insurance Company (hereinafter, the "Company"), an Arizona
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the
undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
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WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has issued or will issue certain variable life
insurance or variable annuity contracts (including any certificates thereunder)
supported wholly or partially by the Account (the "Contracts"), and said
Contracts are listed in Schedule A hereto, as it may be amended from time to
time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act or will not register the Account in proper
reliance upon an exclusion from registration under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in
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-3-
light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts as
provided under Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended (the "Code"). No shares of any Designated Portfolios will be sold to
the general public. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I and VII of this Agreement is in
effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account, and
receipt by such designee shall constitute receipt by the Fund; provided that the
Company receives the order by 4:00 p.m. Baltimore time and the Fund receives
notice of such order by 9:30 a.m. Baltimore time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 4:00 p.m. Baltimore time. If payment in Federal Funds for
any purchase is not received or is received by the Fund after 4:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. Any
material error in the income dividend, or capital gain distribution
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<PAGE>
-4-
information shall be reported to the Company promptly upon discovery. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to
furnish advance notice of the day such dividends and distributions are expected
to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time. If the net asset value is
materially incorrect through no fault of the Company, the Company on behalf of
each Account, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value in accordance with
Fund procedures. Any material error in the net asset value shall be reported to
the Company promptly upon discovery. Any administrative or other costs or losses
incurred for correcting underlying Contract owner accounts shall be at Company's
expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act or that the Contracts are not registered because
they are properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under the Arizona insurance laws and has registered or, prior to
any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts or that it has not registered
the Account in proper reliance upon an exclusion from registration under the
1940 Act.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Arizona and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
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<PAGE>
-5-
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Arizona to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Arizona and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Arizona and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
mi11ion. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or controlled by the Company
and dealing with the money and/or securities of the Fund maintain a similar bond
or coverage in a reasonable amount.
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ARTICLE III. Prospectuses, Statements of Additional Information and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus (which shall include an offering memorandum, if any) for the
Contracts, prospectuses for other mutual funds in which the Contracts may be
invested, and the Fund's prospectus printed together in one document.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and
semi-annual reports to shareholders in such quantity as the Company shall
reasonably request for use in connection with offering the Variable Contracts
issued by the Company. If requested by the Company in lieu thereof, the
Underwriter shall provide such documentation (which may include a final copy of
the Fund's annual and semi-annual reports as set in type or on diskette) and
other assistance as is reasonably necessary in order for the Company (at the
Company's expense) to print such shareholder communications for distribution to
Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Designated Portfolio
for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
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3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus, or SAI for the Contracts, as such
registration statement, prospectus or SAI may be amended or supplemented from
time to time, or in published reports for the Account which are in the public
domain or approved by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
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4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 1 2b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
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5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 Subject to the Company's maintaining the treatment of the Contracts as
life insurance, endowment, or annuity contracts under applicable provisions of
the Code and the regulations issued thereunder (or any successor provisions),
the Fund will invest its assets in such a manner as to ensure that the Contracts
will be treated as annuity, endowment, or life insurance contracts, whichever is
appropriate, under the Code and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will comply with Section 817(h) of the Code and Treasury Regulation
(ss.)1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 Subject to the Fund's compliance with Section 817(h) of the Code and
Treasury Regulation (ss.)1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, any amendments or other modifications or successor
provisions to such Sections or Regulations, the Company represents that the
Contracts are currently, and at the time of issuance shall be, treated as life
insurance, endowment contracts, or annuity insurance contracts, under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing the Contracts have ceased to be so
treated or that they might not be so treated in the future. The Company agrees
that any prospectus offering a contract that is a "modified endowment contract"
as that term is defined in Section 7702A of the Code (or any successor or
similar provision), shall identify such contract as a modified endowment
contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio
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are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
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7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b)) Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
the Underwriter and each of their officers and directors and each person,
if any, who controls the Fund or the Underwriter within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of the Company) or litigation (including legal and other expenses), to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement, prospectus (which shall include an
offering memorandum, if any), or statement of additional
information for the Contracts or contained in the Contracts or
sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged
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statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the
Fund for use in the Registration Statement, prospectus or
statement of additional information for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other
promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its authorization or control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature or other promotional material of
the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an
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Indemnified Party, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Company to such party of the Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts;
and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or SAI or sales
literature or other promotional material of the Fund (or
any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the Registration Statement
or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature or other promotional material for the
Contracts not supplied by the Underwriter or persons under
its control) or wrongful conduct of the Fund or Underwriter
or persons
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under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature or other
promotional material covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article
VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willfull misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the
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Underwriter will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including legal and other expenses)
to which the Indemnified Parties may be required to pay or may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article
VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the
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Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the expense thereof, with
counsel satisfactory to the party named in the action and to settle the
claim at its own expense; provided, however, that no such settlement shall,
without the Indemnified Parties' written consent, include any factual
stipulation referring to the Indemnified Parties or their conduct. After notice
from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to
some or all Designated Portfolios, by six (6) months'
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated
Portfolio based upon the Company's determination that
shares of the Fund are not reasonably available to meet the
requirements of the Contracts; provided that such
termination shall apply only to the Designated Portfolio
not reasonably available; or
(c) termination by the Company by written notice to the Fund
and the Underwriter in the event any of the Designated
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
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- 17 -
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against
the Company by the NASD, the SEC, the Insurance
Commissioner or like official of any state or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Fund
shares, provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a
material adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund
or Underwriter by the NASD, the SEC, or any state
securities or insurance department or any other regulatory
body, provided, however, that the Company determines in its
sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse
effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Designated
Portfolio in the event that such Designated Portfolio
ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet
the qualifications specified in Section 6.3 hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the
Fund or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its
business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its
sole judgment exercised in good faith, that the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(j) termination by any party upon the other party's material
breach of any provision of this Agreement.
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10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
10.4 Any successor by law of the parties hereto shall be entitled to the
benefits of the indemnification provisions contained in Article VIII.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Pruco Life Insurance Company
751 Broad Street
Newark, New Jersey 07102
Attention: Mary L. Cavanaugh, Esq.
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
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- 19-
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Arizona Insurance Commissioner with any information or
reports in connection with services provided wider this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with
Arizona variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
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- 20 -
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY. PRUCO LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ PAUL HALEY
------------------------------------
Title: Vice President & Actuary
------------------------------------
Date: July 11, 1996
------------------------------------
FUND: T. ROWE PRICE INTERNATIONAL
SERIES, INC.
By its authorized officer
By: /s/ HENRY H. HOPKINS
------------------------------------
Title: Vice President
------------------------------------
Date: July 8, 1996
------------------------------------
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ HENRY H. HOPKINS
------------------------------------
Title: Vice President
------------------------------------
Date: July 8, 1996
------------------------------------
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-21 -
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ NANCY M. MORRIS
------------------------------------
Title: Vice President
------------------------------------
Date: July 8, 1996
------------------------------------
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND CONTRACTS FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT DESIGNATED PORTFOLIOS
- -------------------------------------- ------------------- ---------------------
<S> <C> <C>
Pruco Life Flexible Premium Discovery Select T. Rowe Price International Series, Inc.
Variable Annuity Account Annuity Contract o T. Rowe Price International Stock
June 16, 1995 Portfolio
T. Rowe Price Equity Series, Inc.
o T. Rowe Price Equity
Income Portfolio
</TABLE>
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<PAGE>
SCHEDULE A
Effective as of May 1, 1997, this Schedule A is hereby amended as follows:
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY CONTRACTS FUNDED BY
BOARD OF DIRECTORS SEPARATE ACCOUNT DESIGNATED PORTFOLIOS
- ------------------------ ------------------- ---------------------
<S> <C> <C>
Pruco Life Flexible Discovery Select Annuity T. Rowe Price International Series, Inc.
Premium Variable Annuity Contract o T. Rowe Price International Stock
Account est. June 16, 1995 Portfolio
T. Rowe Price Equity Series, Inc.
o T. Rowe Price Equity
Income Portfolio
Pruco Life Variable Variable Universal Life T. Rowe Price International Series, Inc.
Appreciable Account Insurance Policy o T. Rowe Price International Stock
est. January 13, 1984 Portfolio
</TABLE>
IN WITNESS WHEREOF, Pruco Life Insurance Company, T. Rowe Price
Investment Services, Inc. and the undersigned funds hereby amend this Schedule
A in accordance with the Participation Agreement made and entered into as of the
8th day of July, 1996.
COMPANY: PRUCO LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ ESTHER H. MILNES
------------------------------------
Title: President
------------------------------------
Date: May 16, 1997
------------------------------------
FUND: T. ROWE PRICE INTERNATIONAL
SERIES, INC.
By its authorized officer
By: /s/ JAMES S. RIEPE
------------------------------------
Title: Vice President
------------------------------------
Date: May 14, 1997
------------------------------------
II-113
<PAGE>
-2-
SCHEDULE A (CONTINUED)
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By: /s/ JAMES S. RIEPE
---------------------------------------
Title: Vice President
---------------------------------------
Date: May 14, 1997
---------------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ NANCY M. MORRIS
---------------------------------------
Title: Vice President
---------------------------------------
Date: May 14, 1997
---------------------------------------
II-114
EXHIBIT 1.A.(12)
Description of Pruco Life's Issuance, Increases
in or Addition of Insurance Benefits,
Transfer and Redemption Procedures for
Variable Universal Life Insurance Contracts
Pursuant to Rule 6e-3(T)(b)(12)(iii)
and
Method of Computing Adjustments in
Payments and Cash Surrender Values Upon
Conversion to Fixed Benefit Policies
Pursuant to Rule 6e-3(T)(b)(13)(v)(B)
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its Variable Universal Life Insurance Contract ("Contract"), the increase in or
addition of benefits, the transfer of assets held thereunder, and the redemption
by Contract owners of their interests in said Contracts. The document also
explains the method that Pruco Life will follow in making a cash adjustment when
a Contract is exchanged for a fixed benefit insurance Contract pursuant to Rule
6e-3(T)(b)(13)(v)(B).
I. Procedures Relating to Issuance and Purchase of the Contracts and to the
Increase in or Addition of Benefits
A. Premium Schedules and Underwriting Standards
The Contract has Flexible Premiums - no premiums are required to be paid by a
certain date except for the minimum initial premium required to start the
Contract. The minimum initial premium for the Contract, and the charges from the
Contract Fund to reflect the cost of insurance, will not be the same for all
owners. Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner is charged a cost commensurate
with the Insured's mortality risk as actuarially determined utilizing factors
such as age, sex (in most cases), smoking status, health and occupation. Uniform
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<PAGE>
premiums or charges for all Insureds would discriminate unfairly in favor of
those Insureds representing greater risks. However, for a given face amount of
insurance, Contracts issued on insureds in a given risk classification will have
the same minimum initial premium and charges.
The underwriting standards and premium processing practices followed by Pruco
Life are similar to those followed in connection with the offer and sale of
fixed-benefit life insurance, modified where necessary to meet the requirements
of the federal securities laws.
B. Application and Initial Premium Processing
Upon receipt of a completed application form from a prospective owner, Pruco
Life will follow certain insurance underwriting (i.e., evaluation of risk)
procedures designed to determine whether the proposed Insured is insurable. The
process may involve such verification procedures as medical examinations and may
require that further information be provided by the proposed Insured before a
determination can be made. A Contract cannot be issued, i.e., physically issued
through Pruco Life's computerized issue system, until this underwriting
procedure has been completed.
These processing procedures are designed to provide immediate benefits to every
prospective owner who pays the minimum initial premium at the time the
application is submitted. Since a Contract cannot be issued until after the
underwriting process has been completed, we will provide immediate insurance
coverage through use of a Limited Insurance Agreement. This coverage is for the
total death benefit applied for, up to the maximum described by the Limited
Insurance Agreement.
The Contract Date marks the date on which benefits begin to vary in accordance
with the investment performance of the selected investment option(s). It is also
the date as of which the insurance age of the proposed Insured is determined. It
represents the first day of the Contract year and therefore determines the
Contract anniversary and also the Monthly dates. It also represents the
commencement of the suicide and contestable periods for purposes of the
Contract.
If the minimum initial premium is paid with the application and no medical
examination is required, the Contract Date will ordinarily be the date of the
application. If an unusual delay is encountered (for example, if a request for
further information is not met promptly), the Contract Date will be 21 days
prior to the date on which the Contract is physically issued. If an examination
is required, the Contract Date
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<PAGE>
will ordinarily be the date the examination is completed, subject to the same
qualification as that noted above.
If the minimum initial premium is not paid with the application, the Contract
Date will be the Contract Date stated in the Contract, which will generally be
the date the initial premium is received from the owner and the Contract is
delivered.
There is one principal variation from the foregoing procedure. If permitted by
the insurance laws of the state in which the Contract is issued, the Contract
may be back dated up to six months, provided that the backdating results in a
lower insurance age for the Insured. In any event, the Contract may not be
backdated before the product introduction date. The values under the Contract
and the amount(s) deposited into the selected investment option(s) will be
calculated upon the assumptions that the Contract has been issued on the
Contract Date, the minimum initial premium is credited on the Contract date, and
any charges not covered by the minimum initial premium are received on their due
dates. If the initial premium paid is in excess of those amounts, the excess
(after the front-end deductions) will be credited to the Contract and placed in
the selected investment option(s) on the date of receipt.
In general, (1) the invested portion of the minimum initial premium will be
placed in the Contract Fund and allocated to the selected investment options as
of the Contract Date; and (2) the invested portion of any premium in excess of
the minimum initial premium will be placed in the Contract Fund and allocated to
the selected investment options as of the later of the Contract Date and the
date received.
C. Premium Processing
Whenever a premium is received, Pruco Life will subtract the front-end charges.
What is left will be invested in the selected investment option(s). For premiums
other than the minimum initial premium and premiums received prior to the
Contract Date, the premium (less front-end charges) will be invested on the date
received (or, if that is not a business day, on the next business day).
D. Reinstatement
The Contract may be reinstated within five years after default (this period will
be longer if required by state law). The Contract will not be reinstated if it
was surrendered for its cash surrender value. A Contract will be reinstated upon
receipt by Pruco Life of a written application for reinstatement, production of
evidence of insurability
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<PAGE>
satisfactory to Pruco Life and payment of at least (a) any amount required to
bring the cash value to zero on the date the Contract went into default, plus
(b) the deductions from the Contract Fund during the grace period following the
date of default, plus (c) a premium that would be sufficient, after front-end
charges, to cover the deductions from the Contract Fund for three Monthly dates
starting on the date of reinstatement. In addition, any Contract debt (with
interest to date) must be restored or paid back. If debt with interest exceeds
the value of a loan that we would otherwise permit on the reinstated Contract,
the excess must be paid back to Pruco Life at the time of reinstatement.
Except for any such loan repayments, Pruco Life will treat the amount paid upon
reinstatement as a premium. It will deduct the front-end charges plus any amount
required to bring the cash value to zero on the date the Contract went into
default plus any deductions from the Contract Fund that would have been made
during the grace period. The Contract Fund of the reinstated Contract will,
immediately upon reinstatement, be equal to this net premium payment plus the
part of any surrender charge (consisting of a deferred sales charge and a
deferred administrative charge) deducted at the time of default which would have
been charged if the Contract were surrendered immediately after reinstatement.
The reinstatement will take effect as of the Monthly date that coincides with or
next follows the date Pruco Life approves the request for reinstatement.
There is an alternative to this reinstatement procedure that applies only if
reinstatement is requested within three months after the Contract went into
default. In such a case evidence of insurability may not be required and the
amount of the required payment will be an amount Pruco Life estimates will keep
the Contract inforce for three months from the date of default.
E. Repayment of Loan
A loan made under the Contract may be repaid with an amount equal to the monies
borrowed plus interest which accrues daily at a fixed annual rate which depends
on whether the loan is a "regular loan" or "preferred loan." A regular loan is
available at any time and can equal up to the loan value (90% of the portion of
the cash value attributable to the variable investment options and 100% of the
balance of the cash value). The effective annual rate that we charge on regular
loans is 5%. A preferred loan is available starting on the tenth Contract
anniversary, and can equal up to the maximum amount that may still be borrowed
(loan value less existing loans) less cost basis (subject to a minimum of
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<PAGE>
zero, premiums paid less total withdrawals). The effective annual rate that we
charge on preferred loans is 4.5%. A regular loan remains a regular loan - it
will not automatically rollover when a preferred loan is available. However, any
capitalization of interest on a regular loan will be treated as a preferred loan
IF the conditions for a preferred loan are met.
When a loan is made, Pruco Life will transfer an amount equal to the loan from
the investment option(s). While a loan is outstanding, the amount of Contract
Fund attributable to the outstanding loans, whether they are regular loans or
preferred loans, will be credited with interest at an annual rate of 4%. On each
Monthly date, we will increase the portion of the Contract Fund in the
investment options by interest credits accrued on the loan since the last
Monthly date. Pruco Life thus will realize the difference between that rate and
the fixed loan interest rate(s), which will be used to cover the loan investment
expenses, income taxes, if any, and processing costs.
Upon repayment of Contract debt, the loan portion of the payment (i.e., not the
portion of the payment for accrued interest which has not yet been made part of
the loan) will be added to the investment option(s) using the investment
allocation currently in effect for premium payments, as selected by the Contract
owner. Pruco Life reserves the right to change the manner in which it allocates
loan repayments.
F. Increases in or Addition of Insurance Benefits
After issue, Pruco Life may permit Owners to increase or add to the existing
insurance amounts in a way similar to our new business procedures outlined above
and in the prospectus.
II. Transfers
Currently, fifteen subaccounts are available for investment by Contract owners
of Pruco Life Variable Appreciable Account ("Account"), each of which is
invested in shares of a corresponding portfolio of The Prudential Series Fund,
Inc. or other such funds which we specify ("Funds"). The Funds are registered
under the 1940 Act as open-end diversified management investment companies. In
addition, a fixed-rate option is available.
Provided the Contract is not in default, the owner may, up to twelve times in
each Contract year, transfer amounts from one subaccount to another subaccount
or to the fixed-rate option without charge. Additional transfers are subject to
an administrative charge deducted
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<PAGE>
from the Contract Fund of up to $25. Pruco Life currently charges $25. All or a
portion of the amount credited to a subaccount may be transferred.
In addition, the entire amount of the Contract Fund may be transferred to the
fixed-rate option during the first two Contract years, or at any time
thereafter. Contract owners who wish to convert their variable contract to a
fixed-benefit contract in this manner must request a complete transfer of funds
to the fixed-rate option and should also change their allocation instructions
regarding any future premiums.
Transfers among subaccounts will take effect at the end of the valuation period
in which a proper transfer request is received at a Pruco Life Home Office. The
request may be in terms of dollars, such as a request to transfer $5,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers.
Only one transfer from the fixed-rate option will be permitted during the
Contract year and the maximum amount which may be transferred out of the
fixed-rate option each year is the greater of (a) 25% of the amount in the
fixed-rate option; and (b) $2,000. These limits are subject to change in the
future. Pruco Life may waive these restrictions for limited periods of time in a
non-discriminatory way.
III. "Redemption" Procedures: Surrender and Related Transactions
A. Surrender for Cash Surrender Value
If the insured under a Contract is alive, Pruco Life will pay, within seven
days, the Contract's cash surrender value as of the date of receipt at its Home
Office of the Contract, a signed request for surrender, and any tax withholding
information required under federal or state law. Pruco Life reserves the right
to postpone paying that part of the cash surrender value that is to come from
any variable investment option (provided by a separate account registered under
the Investment Company Act of 1940) if; (1) the New York Stock Exchange is
closed; or (2) the SEC requires that trading be restricted or declares an
emergency. Pruco Life reserves the right to postpone paying the remainder for up
to six months. If this is done for more than thirty days, Pruco Life will pay
interest at the rate of 3% a year.
The Contract's cash surrender value is the Contract Fund, minus any surrender
charge, consisting of a deferred sales charge and a deferred administrative
charge, minus any Contract debt.
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The deferred sales charge and deferred administrative charge are described in
the prospectus. The deferred administrative charge is designed to recover the
administrative expenses, such as underwriting expenses, incurred in connection
with the issuance of a Contract. As a result, in the early months after issue,
there may be no cash surrender value.
In lieu of the payment of the cash surrender value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all or a
portion of the proceeds under one of the fixed benefit settlement options
described in the Contract. The fixed benefit settlement options are subject to
the restrictions and limitations set forth in the Contract.
B. Withdrawals from the Contract Fund
A withdrawal from the Contract may be made only if the following conditions are
satisfied. First, Pruco Life must receive a request for the withdrawal in a form
that meets its need. Second, the cash surrender value after withdrawal may not
be less than or equal to zero after deducting any charges associated with the
withdrawal. Third, the amount withdrawn must be at least $500. Fourth, the basic
insurance amount after withdrawal must be at least equal to the minimum basic
insurance amount shown in the Contract. There is a fee of up to $25 for each
withdrawal. We currently charge $10 for each withdrawal. An amount withdrawn may
not be repaid except as a premium subject to the Contract charges.
Whenever a withdrawal is made, the death benefit payable will immediately be
reduced by at least the amount of the withdrawal. This will not change the Basic
Insurance Amount (minimum face amount specified in the Contract) under a Type B
(variable) Contract. However, under a Type A (fixed) Contract, the resulting
reduction in death benefit usually requires a reduction in the Basic Insurance
Amount. No withdrawal will be permitted under a Type A (fixed) Contract if it
would result in a Basic Insurance Amount less than the minimum Basic Insurance
Amount of $250,000.
The Contract Fund is reduced by the sum of the cash withdrawn, any surrender
charge resulting from the withdrawal, and the fee for the withdrawal. An amount
equal to the reduction in the Contract Fund will be withdrawn from the
investment options.
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<PAGE>
C. Death Claims
Pruco Life will pay a death benefit to the beneficiary at the insured's death if
the Contract is in force at the time of that death. The proceeds will be paid
within seven days after receipt at Pruco Life's Home Office of proof of death of
the Insured and all other requirements necessary to make payment. State
insurance laws impose various requirements, such as receipt of a tax waiver,
before payment of the death benefit may be made. Pruco Life reserves the right
to postpone payment of that part of the proceeds that is to come from any
variable investment option (provided by a separate account registered under the
Investment Company Act of 1940) if; (1) the New York Stock Exchange is closed;
or (2) the SEC requires that trading be restricted or declares an emergency.
Pruco Life reserves the right to postpone paying the remainder for up to six
months.
In addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Pruco Life should
contest the validity of a death claim, an amount up to the portion of the
Contract Fund in the variable investment options will be withdrawn, if
appropriate, and held in Pruco Life's general account.
If the Contract is not in default past its days of grace, the amount Pruco Life
will pay will be the death benefit determined as of the date of the Insured's
death reduced by any Contract debt.
There may be an additional amount payable from an extra benefit added to the
Contract by rider.
No death benefit is payable if the insured's death occurs past the grace period.
On any date, the death benefit under a Type A (fixed) Contract is the greater of
(1) the Basic Insurance Amount, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the insured's attained age and are shown in the Contract.
On any date, the death benefit under a Type B (variable) Contract is the greater
of (1) the Basic Insurance Amount plus the Contract Fund before deduction of any
monthly charges due on that date, and (2) the Contract Fund before deduction of
any monthly charges due on that date, multiplied by attained age factors. These
factors vary by the insured's attained age and are shown in the Contract. For
the purposes
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of this calculation, the Contract Fund will be considered to be zero if it is
less than zero.
The proceeds payable on death also will generally include interest (at a rate
determined by Pruco Life) from the date of death until the date of payment.
However, state insurance laws may impose additional or different requirements.
Pruco Life will make payment of the death benefit out of its general account,
and will transfer assets, if appropriate, from the Account to the general
account in an amount up to the Contract Fund.
In lieu of payment of the death benefit in a single sum, an election may be made
to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Contract or, with the approval of Pruco
Life, a combination of options. The election may be made by the owner during the
Insured's lifetime, or, at death, by the beneficiary. An option in effect at
death may not be changed to another form of benefit after death. The fixed
benefit settlement options are subject to the restrictions and limitations set
forth in the Contract.
D. Default and Options on Lapse
The Contract can go into default if either (1) the Contract debt ever grows to
be equal to or more than the cash value, or (2) on any Monthly date, the cash
value is equal to or less than zero UNLESS it remains in force under the Death
Benefit Guarantee. Monthly dates occur on the Contract Date and in each later
month on the same day of the month as the Contract Date. The Death Benefit
Guarantee will hold if the Contract has no excess Contract debt and if premiums
accumulated at 4% less withdrawals accumulated at 4% are greater than or equal
to values shown in the Contract (Limited Death Benefit Guarantee Values and
Lifetime Death Benefit Guarantee Values).
The Contract provides for a grace period extending 61 days after the mailing
date of the notice of default. The insurance coverage continues in force during
the grace period, but if the Insured dies during the grace period, any charges
due to the date of the death are deducted from the amount payable to the
beneficiary.
E. Loans
The Contract provides that an owner may take out a loan at any time a loan value
is available providing (1) the Contract is assigned to Pruco
II-123
<PAGE>
Life as the only security for the loan, (2) the Insured must be living, and (3)
the resulting Contract debt must not be more than the loan value (90% of the
portion of the cash value attributable to the variable investment options and
100% of the balance of the cash value).
The investment options will be debited in the amount of the loan on the date the
loan is approved. The percentage of the loan withdrawn from each investment
option will normally be equal to the percentage of the value of such assets held
in the investment option unless otherwise requested and Pruco Life agreed. An
owner may borrow up to the Contract's full loan value. The loan provision is
described in the Contract and in the prospectus.
A loan does not affect charges. When a loan is made, the Contract Fund is not
reduced, but the value of the assets relating to the Contract held in the
investment option(s) is reduced. Accordingly, the daily changes in the cash
surrender value will be different from what they would have been had no loan
been taken. Cash surrender values, and possibly death benefits, are thus
permanently affected by any Contract debt, whether or not repaid.
The guaranteed minimum death benefit is not affected by Contract debt. However,
on settlement the amount of any Contract debt is subtracted from the insurance
proceeds. If Contract debt ever becomes equal to or more than the cash value,
all the Contract's benefits will end 61 days after notice is mailed to the owner
and any known assignee, unless payment of an amount sufficient to end the
default is made within that period.
IV. Cash Adjustment Upon Exchange of Contract
As described previously, so long as the Contract is not in default, the Owner
may transfer all amounts in the variable investment options into the fixed-rate
option. This option is provided in lieu of the option to exchange to a
comparable fixed benefit life insurance contract.
This option is also available following any increase in or addition of benefits
under the Contract.
II-124
EXHIBIT 3
June 25, 1997
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
Gentlemen:
In my capacity as Chief Legal Officer of Pruco Life Insurance Company ("Pruco
Life"), I have reviewed the establishment on January 13, 1984 of Pruco Life
Variable Appreciable Account (the "Account") by the Executive Committee of the
Board of Directors of Pruco Life as a separate account for assets applicable to
certain variable life insurance contracts, pursuant to the provisions of Section
20-651 of the Arizona Insurance Code. I am responsible for oversight of the
preparation and review of the Registration Statement on Form S-6, as amended,
filed by Pruco Life with the Securities and Exchange Commission (Registration
No. 333-07451) under the Securities Act of 1933 for the registration of certain
variable universal life insurance contracts issued with respect to the Account.
I am of the following opinion:
(1) Pruco Life was duly organized under the laws of Arizona and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of Arizona law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable appreciable
life insurance contracts is not chargeable with liabilities arising
out of any other business Pruco Life may conduct.
(4) The variable universal life insurance contracts are legal and binding
obligations of Pruco Life in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ CLIFFORD E. KIRSCH
- --------------------------------
Clifford E. Kirsch
II-125
EXHIBIT 6
June 25, 1997
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102-2992
To Pruco Life Insurance Company:
This opinion is furnished in connection with the registration by Pruco Life
Insurance Company of its Variable Universal Life Contract ("Contract") under the
Securities Act of 1933. The prospectus included in Post- Effective Amendment No.
2 to Registration Statement No. 333-07451 on Form S-6 describes the Contract. I
have reviewed the Contract and I have participated in the preparation and review
of the Registration Statement and Exhibits thereto. In my opinion:
(1) The illustrations of cash surrender values and death benefits included
in the section of the prospectus entitled "Illustrations of Cash
Surrender Values, Death Benefits, and Accumulated Premiums," based on
the assumptions stated in the illustrations, are consistent with the
provisions of the Contracts. The rate structure of the Contract has
not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear more favorable to a
prospective purchaser of a Contract for male age 35 than to
prospective purchasers of Contracts on males of other ages or on
females.
(2) The examples shown in the section of the prospectus entitled "Changing
the Type of Death Benefit" are consistent with the provisions of the
Contract.
(3) The examples shown in the section of the prospectus entitled "Death
Benefit Guarantee" are consistent with the provisions of the Contract.
(4) The charts included in the sections of the prospectus "How a Type A
(Fixed) Contract's Death Benefit Will Vary" and "How a Type B
(Variable) Contract's Death Benefit Will Vary" are consistent with the
provisions of the Contract.
(5) The deduction in an amount equal to 1.25% of each premium is a
reasonable charge in relation to the additional income tax burden
imposed upon The Prudential Insurance Company of America as the result
of the enactment of Section 848 of the internal Revenue Code. In
reaching that conclusion, a number of factors were taken into account
that, in my opinion, were appropriate and which resulted in a project
after-tax rate of return that is a reasonable rate to use in
discounting the tax benefit of the deductions allowed in Section 848
in taxable years subsequent to the year in which the premiums are
received.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/s/ CHING-MEEI CHANG
- ----------------------------------
Ching-Meei Chang, FSA, MAAA
Actuarial Director
The Prudential Insurance Company of America
II-126
EXHIBIT 7
POWER OF ATTORNEY
Know all men by these presents:
That I, James J. Avery, Jr., of Newark, New Jersey, a member of the board
of Directors of the Pruco Life Insurance Company, do hereby make, constitute and
appoint as my true and lawful attorneys in fact CLIFFORD E. KIRSCH, THOMAS C.
CASTANO, RICHARD E. MEADE, THOMAS J. LOFTUS, ARTHUR WOODS and C. CHRISTOPHER
SPRAGUE, or any of them severally for me in my name, place and stead to sign,
where applicable: Annual Reports on Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934,
and all amendments thereto executed on behalf of Pruco Life Insurance Company
and filed with the Securities and Exchange Commission for the following:
The Pruco Life PRUvider Variable Appreciable Account and variable life
insurance contracts, to the extent they represent participating interestts
in said Account;
The Pruco Life Variable Appreciable Account and flexible premium variable
life insurance contracts, to the extent they represent participating
interests in said Account;
The Pruco Life Variable Insurance Account and scheduled premium variable
life insurance contracts, to the extent they represent participating
interests in said Account;
The Pruco Life Single Premium Variable Life Account and flexible premium
variable life insurance contracts, to the extent they represent
participating interests in said Account;
The Pruco Life Variable Universal Account and flexible premium variable
universal life insurance contracts, to the extent they represent
participating interests in said Account;
The Pruco Life Single Premium Variable Annuity Account and single payment
variable annuity contracts, to the extent they represent participating
interests in said Account;
II-127
<PAGE>
The Pruco Life Flexible Premium Variable Annuity Account and flexible
premium variable annuity contracts, to the extent they represent
participating interests in said Account;
Market value adjustment annuity contracts; and
The Pruco Life Variable Contract Real Property Account and individual
variable life insurance contracts and variable annuity contracts, to the
extent they represent participating interests in said Account.
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of June,
1997.
/s/ JAMES J. AVERY, JR.
------------------------------
Signature
State of New Jersey )
) SS
County of Essex )
On this 18th day of June, 1997, before me personally appeared John V.
Scicutella known to me to be the person mentioned and described in and who
executed the foregoing instrument and he duly acknowledged to me that he
executed the same.
My commission expires:
July 26, 1999
/s/ ANN L. WELLBROCK
----------------------------
II-128
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The Variable Universal Subaccounts of PrucoLife Appreciable Account
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<INVESTMENTS-AT-COST> 2,069,104 2,086,771
<INVESTMENTS-AT-VALUE> 2,550,994 2,568,706
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<ASSETS-OTHER> 0 0
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<TOTAL-LIABILITIES> 0 0
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<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 140,277 141,649
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<NET-ASSETS> 2,550,994 2,568,706
<DIVIDEND-INCOME> 607 80,596
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 191,798
<EXPENSES-NET> 2,817 10,250
<NET-INVESTMENT-INCOME> (2,210) 70,346
<REALIZED-GAINS-CURRENT> 6,509 20,856
<APPREC-INCREASE-CURRENT> (46) 40,537
<NET-CHANGE-FROM-OPS> 4,253 323,536
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> (17,712) 264,244
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
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